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UNIVERSITY  OF  PENNSYLVANIA 

UC-NRLF 


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COMPETITION  AN^  COMBINATION 

IN  THE  wholesale;  GROCERY  TRADE 

IN  PHILADELPHIA 


....\ 


WILLIAM  LEWIS  ABBOTT 


A  THESIS 

PRESENTED  TO  THE  FACULTY  OF  THE  GRADUATE  SCHOOL  IN 

PARTIAL  FULFILLMENT  OF  THE  REQUIREMENTS  FOR 

THE  DEGREE  OF  DOCTOR  OF  PHILOSOPHY 


GEORGE  BANTA  PUBLISHING  COMPAXN 
MENASHA,  WISCONSIN 
1020  r<^ 


EXCHANGE 


Digitized  by  the  Internet  Archive 

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http://www.archive.org/details/competitioncombiOOabborich 


UNIVERSITY  OF  PENNSYLVANIA 


COMPETITION  AND  COMBINATION 

IN  THE  WHOLESALE  GROCERY  TRADE 

IN  PHILADELPHIA 


BY 

WILLIAM  LEWIS  ABBOTT 


A  THESIS 

PRESENTED  TO  THE  FACULTY  OF  THE  GRADUATE  SCHOOL  IN 

PARTIAL  FULFILLMENT  OF  THE  REQUIREMENTS  FOR 

THE  DEGREE  OF  DOCTOR  OF  PHILOSOPHY 


GEORGE  BANTA  PUBLISHING  COMPANY 

MENASHA,  WISCONSIN 

1920 


•?r^*?!H*<*?fSS 


CONTENTS 

Chapter  Page 

I     The  Place  of  the  Wholesaler  in  the  Distribution  of 

Groceries i 

II     Developments    Threatening    the    Position    of    the 

Wholesaler 12 

III  Efforts  of  the  Wholesalers  to  Meet  the  Competition 

of  the  Co-operative  Associations 24 

Sec.  I.     Early  Efforts 

Sec.  2.     The  Wholesale  Grocers' Sales  Company 

Sec.  3.     The  Community  Stores  Company 

IV  Selling  Plans  of  the  Co-operative  Associations 51 

V     Comparative  Advantages  of  Wholesalers  and  Co- 
operative Associations 61 

VI    Efficiency  of  the  Co-operative  Associations 74 


/ 


452191 


CHAPTER  I 

THE  PLACE  OF  THE  WHOLESALER  IN  THE 
DISTRIBUTION  OF  GROCERIES 

One  of  the  results  of  the  rapidly  increasing  food  prices  of 
the  past  years  has  been  to  attract  particular  attention,  both 
from  the  general  public  and  from  students  of  political  economy, 
to  the  system  of  marketing  food  products.^  The  questions 
have  been  raised  whether  the  system  is  as  efficient  as  it  might 
be,  whether  part  of  the  high  prices  may  justly  be  charged  to 
wastefulness  or  inefficiency  in  the  system  and  whether  it  may 
not  be  improved  in  some  ways  with  a  resulting  reduction  in 
the  expenses  of  marketing,  and  therefore  in  prices  to  consumers. 

Two  of  the  points  of  attack  in  this  criticism  have  been  the 
wholesaling  and  retailing  processes.  These  two  are  the  most 
expensive  links  in  the  chain  of  agencies  connecting  the  manu- 
facturer or  grower  of  food  products  with  the  consumer.  The 
average  cost  of  doing  business  of  wholesale  grocers  in  the 
eastern  section  of  the  country  seems  to  be  about  8.5  per  cent 
of  gross  sales.  Figures  gathered  by  the  Harvard  Bureau  of 
Business  Research  show  that  the  common  cost  of  doing  business 
for  108  wholesale  grocers  throughout  the  United  States  is 
9.5  per  cent. 2  At  the  Tri-State  Wholesale  Grocers*  Conven- 
tion held  in  Philadelphia  March  thirteenth,  191 8,  a  report  by 
a  committee  on  "The  License  System  in  Its  Relation  to  the 
Cost  of  Doing  Business"  stated  that  reports  from  wholesale 
grocers  in  eastern  Pennsylvania,  New  Jersey  and  Delaware 
showed  an  average  cost  of  8.6  per  cent.^  Classifying  the 
reporting  firms  according  to  sections  of  the  territory,  it  was 
found   that   the  highest   figures   for   a  sectional   group  were 

^  According  to  the  figures  of  the  United  States  Bureau  of  Labor  Statistics,  the  prices  of  the 
principal  articles  of  food  in  the  United  States  were  84  per  cent  higher  in  September,  1919,  than 
in  1913.     U.  S.  Bureau  of  Labor  Statistics:  Monthly  Labor  Review,  November  1919,  p.  132. 

^  Bureau  of  Business  Research,  Harvard  University,  Bulletin  No.  9.  Operating  Expenses 
in  the  Wholesale  Grocery  Business,  p.  5, 

'  American  Grocer,  March  20,  191 8,  p.  9. 


2  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

10.06  per  cent  for  those  in  the  Lehigh  Valley  district,  and  the 
lowest  8.19  per  cent  for  those  in  Philadelphia  and  Camden. 
Of  the  two  sets  of  figures,  probably  those  of  the  Harvard 
Bureau  are  based  upon  the  most  accurate  study.  They  are 
compiled  from  the  statements  of  wholesale  grocers  who  have 
adopted  a  uniform  system  of  accounting  prepared  by  the 
Bureau  in  co-operation  with  the  National  Wholesale  Grocers' 
Association.  Figures  received  from  fifty-one  grocers  were  not 
used  because  their  reports  could  not  be  adjusted  to  the  account- 
ing system.'^  Even  with  the  system  of  uniform  accounting, 
there  appear  to  be  possibilities  of  different  methods  of  reckon- 
ing the  various  items,  such  as  net  sales,  gross  margin,  etc. 
If  we  accept  8.5  per  cent  of  net  sales  as  the  common  cost  of 
doing  business,  the  wholesaler  must  then  add  9.29  per  cent 
to  the  prices  at  which  he  purchases,  simply  to  cover  expenses. 
That  is,  a  margin  of  8.5  per  cent  of  the  sales  is  equal  to  an 
increase  of  9.29  per  cent  on  the  purchase  price.  If  the  grocer 
sells  ?ioo,ooo.oo  worth  of  goods  in  a  year,  his  expenses,  8.5  per 
cent  of  that,  have  been  $8,500.00.  If  the  goods  cost  him 
J91, 500.00  he  has  just  made  expenses.  He  has  marked  up  the 
goods,  however,  by  9.29  per  cent  of  the  price  which  he  paid 
($8,500.00  increase  on  a  base  of  $91,500.00).  Similarly,  if  we 
take  the  figures  of  the  Harvard  Bureau,  9.5  per  cent  of  sales 
as  cost  of  doing  business,  the  wholesaler  must  mark  up  his 
goods,  on  the  average  by  10.5  per  cent  of  the  purchase  price 
which  he  pays  to  equal  the  9.5  per  cent  of  the  sales  price 
on  which  he  figures  cost  of  doing  business.  This  means  that 
to  make  a  profit,  he  must  add  about  12  per  cent  to  the  price. 
The  figures  of  the  Bureau  of  Business  Research  of  Harvard 
University  show  that  the  wholesalers  are  selling  at  an  increase 
of  from  7.7  per  cent  to  17.2  per  cent  of  the  prices  which  they 
charge  with  a  mode  of  about  12  per  cent.^  This  is  equal  to 
an  increase  of  13.64  per  cent  of  the  prices  at  which  the  whole- 
saler buys.     It  seems  safe  to  say,  then,  that  the  wholesale 

*  Op.  cit.,  p.  3. 

^  Bulletin  No.  9,  p.  5. 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  3 

grocer,  on  the  average,  increases  the  prices  of  the  goods  which 
he  handles  by  from  12  to  14  per  cent. 

The  costs  of  the  retail  grocer,  and  the  increase  in  price 
attributable  to  him  are  even  higher.  It  is  generally  reckoned 
that  the  cost  of  doing  business  of  the  independent  retail  grocery 
store  is  18  per  cent  of  sales.®  The  Harvard  Bureau  of  Business 
Research  gives  the  common  figure  of  expenses  at  16.5  per  cent 
of  sales  and  the  gross  profit  21  per  cent  of  sales.^  Here  again, 
if  the  margin  between  purchases  and  sales  is  21  per  cent  of  the 
latter,  it  is  26.58  per  cent  of  the  former.  The  retailer  then 
must  add  25  or  26  per  cent  to  the  prices  which  he  pays  the 
wholesaler. 

These  figures  mean  that,  out  of  the  prices  paid  by  the 
purchaser  at  the  grocery  store,  28.5  per  cent,  on  the  average, 
goes  to  the  retailer  and  wholesaler;  or,  putting  it  the  other 
way,  that  these  two  agencies  increase  the  prices  of  the  goods 
passing  thru  their  hands  by  40  per  cent. 

It  is  with  the  part  of  the  wholesaler  that  this  paper  is  par- 
ticularly concerned.  Against  him,  a  number  of  charges  have 
been  lodged.  It  has  been  alleged  that  he  is  an  unnecessary 
and  superfluous  link  in  the  chain  connecting  the  manufacturer 
with  the  consumer;  that  he  performs  his  function  inefliciently; 
that  he  adds  to  prices  without  performing  any  commensurate 
service.  Particularly  at  the  immediate  present  there  appears 
to  be  a  very  general  feeling  that  the  wholesaler  habitually 
indulges  in  "speculation"  and  "profiteering"  in  food-stuffs. 
The  newspapers  print  cartoons  representing  gentlemen  in  high 
silk  hats,  afflicted  with  an  extreme  rotundity,  supposedly  as 
a  result  of  swollen  profits.  These  are  labeled  "Middleman" 
or  with  some  similar  designation.  The  slogan  "Eliminate 
the  middleman"  is  frequently  quoted  as  a  solution  of  the  high 
cost  of  food,  at  least  in  part. 

In  the  course  of  mercantile  development,  several  plans  for 
the  elimination  of  the  wholesaler,  or  the  curtailment  of  his 

^  Grocers'  Review,  September  1917,  p.  494. 

E.  M.  Patterson,  The  Cost  of  Distributing  Groceries,  in  The  Annals  of  the  American 
Academy  of  Political  and  Social  Science,  November  1913,  p.  75. 

'  Bureau  of  Business  Research,  Harvard  University,  Bulletin  No.  5.  Expenses  in  Operat- 
ing Retail  Grocery  Stores,  p.  7. 


4  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

functions,  have  been  suggested.  Some  of  these  have  been 
tested  in  actual  practice.  Municipal  marketing  projects  have 
been  carried  on  in  various  cities,  ranging  from  the  simple 
device  of  permitting  farmers  and  hucksters  to  line  up  along 
the  sidewalk  in  some  street,  to  the  erection  of  municipal  cold 
storage  plants,  warehouses,  and  market-houses.  The  Post 
Office  has  urged  a  more  extensive  use  of  the  parcel  post  in  the 
marketing  of  food  products.  Plans  of  co-operative  marketing 
have  been  tried. 

These  last  have  been  of  two  main  types — consumers* 
co-operation  and  retailers'  co-operation.  In  the  former,  a 
number  of  consumers  have  formed  an  association  for  the 
purchasing  of  the  goods  desired.  In  a  typical  form  of  such  an 
association,  each  member  subscribes  a  part  of  the  capital,  this 
is  invested  in  a  stock  of  goods,  these  are  sold,  and  from  the 
proceeds,  after  deducting  expenses,  interest  is  paid  on  the 
capital.  The  remaining  profits  are  then  divided  among  the 
purchasers,  in  proportion  to  the  amount  of  goods  purchased. 

In  the  second  form,  the  co-operators  are  retailers.  In  several 
lines  of  merchandising,  the  retailers  in  certain  cities  have 
organized  and  carried  on  with  much  success  co-operative  whole- 
sale houses.  In  the  typical  form  of  such  an  organization,  a 
group  of  retailers,  such  as  druggists  or  grocers,  incorporate 
themselves  as  a  wholesale  company.  The  stock  will  be  sub- 
scribed by  the  retailers,  with  two  important  provisions:  first, 
that  no  stock  shall  be  held  by  any  person  not  connected  with 
a  retail  store  in  the  trade  concerned;  and,  second,  that  each 
member,  and  not  each  share  of  stock  shall  have  one  vote. 
Such  co-operative  wholesale  associations  usually  sell  at  prices 
somewhat  lower  than  the  regular  wholesalers,  but  with  a 
curtailment  of  the  services  furnished  by  the  latter.  In 
addition,  the  stockholders,  at  the  end  of  stated  periods,  receive, 
if  their  venture  has  been  successful,  dividends  on  their  own 
wholesale  business.  There  are  a  number  of  such  associations 
now  carrying  on  wholesale  businesses  in  the  drug  trade,  and  in 
the  grocery  trade. ^    The  writer  has  been  informed  that  there 

*  The  organization  and  methods  of  the  co-operative  buying  associations  of  retail  druggists 
are  described  in  an  article  by  L.  D.  H.  Weld,  Co-operative  Buying  by  Retail  Druggists,  in 
The  Druggists'  Circular,  vol.  Ixi,  pp.  119-123  (March  191 7). 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  5 

are  some  in  the  tobacco  trade,  also,  but  has  not  made  a  personal 
inquiry  in  regard  to  them. 

Retailers*  co-operation  in  the  grocery  trade  has  had  an 
especially  large  development  in  Philadelphia.  There  are  in 
that  city  two  strong  associations  of  retail  grocers,  each  conduct- 
ing a  co-operative  wholesale  business  running  into  millions  of 
dollars  a  year,  with  two  of  the  largest  grocery  warehouses  in 
the  city.  In  view  of  the  present  agitation  in  regard  to  the 
system  of  food  distribution,  and  the  value  of  the  middleman, 
this  development  is  of  particular  interest.  The  co-operative 
associations  of  retailers  are  nothing  less  than  substitutes  for 
the  wholesaler.  Instead  of  depending  upon  the  established 
wholesalers,  the  retailers  are  combining  their  purchases  into 
wholesale  quantities,  conducting  their  own  wholesale  distribu- 
tions, and  taking  to  themselves  the  profits  of  both  the  whole- 
sale and  retail  processes. 

When  the  development  is  viewed  in  this  light,  there  are  a 
number  of  interesting  questions  which  suggest  themselves. 
It  is  the  object  of  this  paper  to  make  a  study  of  the  develop- 
ment of  these  co-operative  buying  associations  in  Philadelphia 
and  the  attempts  of  the  independent  wholesalers  to  meet  the 
situation  created  by  the  wide  scope  of  their  activities,  and  to 
discuss  some  of  these  questions.  There  are  two  to  which 
particular  attention  will  be  paid.  First,  the^ffect^pon  the 
efficiency  of  the  system  of  marketing  groceriesT""''^o  the  co- 
operative associations  represent  more  efficient  and  economical 
methods  of  distribution  than  the  older  type  of  independent 
wholesalers?  Second,  the  effect  upon  the  status  of  the  inde- 
pendent wholesaler:  Does  the  development  of  the  associations 
represent  a  tendency  toward  the  elimination  of  the  wholesaler 
from  the  grocery  business? 

In  order  to  discuss  these  questions  adequately,  it  is  neces- 
sary to  have  a  somewhat  detailed  knowledge  of  the  present 
system  of  marketing  groceries,  and  the  situation  created  by  the 
development  of  the  co-operative  associations.  This  means 
that  we  must  have  a  knowledge  of  the^history  and  functions 
of  the  wholesale  grocer;  that  we  must  consider  his  situation  in 


6  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

Philadelphia  at  the  present  time;  and  that  we  must  examine 
his  efforts  to  meet  that  situation. 

In  connection  with  the  first  of  these,  the  historical  develop- 
ment and  functions  of  the  wholesale  grocer,  it  should  be  noted 
that  most  retail  grocery  stores  handle  several  distinct  lines  of 
goods.  Of  course,  they  handle  groceries.  But  this  term  itself 
includes  a  number  of  different  types  of  goods.  They  are 
generally  regarded  as  falling  into  two  principal  groups.  The 
first  group  includes  package,  bottled  and  canned  goods,  and 
similar  articles.  These  goods  have  passed  thru  a  process  of 
manufacturing  and  are  received  by  the  retailer  in  the  packages 
which  are  delivered  to  the  purchaser.  The  second  group 
includes  the  staple  articles,  such  as  sugar,  coffee,  tea,  flour, 
cereals  in  bulk,  and  similar  goods.  These  goods  have,  like 
the  preceding,  passed  thru  a  manufacturing  or  refining  process, 
but  they  are  received  by  the  retailer  in  bulk,  not  in  packages, 
bottles  or  cans  ready  to  be  delivered  to  the  consumer.  There 
are  several  obvious,  but,  from  the  standpoint  of  marketing 
and  selling,  rather  important  differences  in  these  two  classes  of 
goods.  The  package  good  goes  into  the  consumer's  home 
bearing  the  manufacturer's  label.  It  has  behind  it,  to  this 
degree,  his  guarantee,  and  his  reputation  depends  upon  the 
satisfaction  which  it  gives.  The  good  which  is  sold  in  bulk 
usually  goes  into  the  home  with  no  mark  showing  the  manu- 
facturer. Frequently,  the  consumer  does  not  know  who  the 
manufacturer  is.  If  satisfied,  he  cannot  be  sure  of  getting 
the  same  manufacturer's  product  next  time.  If  dissatisfied, 
he  cannot  be  certain  that  he  may  not  receive  the  same  product, 
even  tho  he  goes  to  another  store.  The  reputation  of  the 
maker  is  not  nearly  so  closely  linked,  in  the  mind  of  the  pur- 
chaser, with  the  output,  as  it  is  in  the  case  of  the  goods  which 
come  into  the  home  plainly  labeled. 

Another  difference  lies  in  the  fact  that  the  bulk  goods  are 
weighed  and  wrapped  in  the  retail  store,  while  the  package 
goods  are  simply  taken  down  from  the  retailer's  shelves  and 
handed  to  the  purchaser. 

The  tendency  at  the  present  time  is  for  more  and  more  of 
the  staples  to  be  put  up  in  packages,  bearing  the  maker's, 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  7 

refiner's,  packer's  or  importer's  name,  thus  becoming  package 
goods.  Thus,  where  a  few  years  ago,  sugar,  tea,  coffee, 
biscuits,  and  numerous  other  articles  were  sold  largely  in 
bulk,  and  weighed  out  from  bins  by  the  retail  grocer,  now  a 
large  proportion  of  them  is  put  up  in  packages  by  the  respec- 
tive manufacturers,  and  sold  under  their  brands.  During  the 
war,  a  number  of  sugar  manufacturers  published  advertisements 
urging  the  public  to  buy  sugar  put  up  in  packages  as  a  more 
economical  method  of  selling  than  the  older  method  of  the 
retailer  weighing  it  out  and  putting  it  up  in  paper  bags.  A 
few  years  ago.  The  National  Biscuit  Company  published 
advertisements  urging  the  greater  cleanliness  and  healthfulness 
of  purchasing  biscuits  in  packages,  rather  than  in  bulk. 

Many  grocers  do  not  confine  themselves  to  the  handling  of 
those  goods  which  we  have  included  under  the  term  groceries. 
They  also  handle  farm  products,  such  as  perishable  fruits  and 
vegetables;  imported  fruits;  dairy  products;  meats;  candies; 
cigars;  and  so  forth.  None  of  these  terms  can,  of  course,  be 
regarded  as  strictly  and  scientifically  classificatory.  Even  the 
word  "groceries"  itself,  as  used  by  those  engaged  in  the  business, 
seems  to  be  an  elastic  and  indefinite  term.  Cheese,  for  instance, 
may  be  regarded  as  a  dairy  product,  or  as  a  grocery.  This 
paper,  however,  is  particularly  concerned,  with  the  marketing 
of  groceries,  including  under  that  term  the  two  classes  of  goods 
described  above: — food  products  put  up  in  packages  of  some 
kind,  and  non-perishable  staples. 

In  the  past,  the  distribution  of  these  goods  has  usually  been 
carried  on  from  the  manufacturer,  thru  the  wholesaler  to  the 
retailer.  Frequently,  one  hears  one  of  these  agencies  referred 
to  as  the  "jobber."  Again,  there  is  a  lack  of  definiteness  in 
the  popular  usage,  with  the  result  that  there  is  much  con- 
fusion in  the  use  of  the  two  terms'  "jobber"  and  "wholesaler." 
Originally,  there  seems  to  have  been  a  distinction  between  the 
two.  The  wholesaler  brought  the  goods  into  a  city,  having 
them  shipped  to  him  from  the  manufacturers  in  large  quantities. 
The  jobber  purchased  in  quantity  from  the  wholesaler,  but  of 
course,  in  smaller  quantities  than   the  wholesale  shipments 


8  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

from  the  manufacturers,  and  resold  in  small  quantities  to  the 
retailers.  At  the  present  time,  both  of  these  functions  are 
filled  by  one  firm,  which  brings  the  goods  in  in  large  quantities, 
and  resells  them  to  the  retailers.  The  result  is  that  the  two 
terms  are  used  in  the  trade  practically  interchangeably. 

In  the  handling  of  some  lines  of  goods,  brokers  have  inter- 
vened between  the  manufacturer  and  wholesaler,  as  in  the 
handling  of  canned  foods,  dried  fruits,  coffee,  spices,  and  other 
commodities.  The  broker  developed  because  these  lines  were 
manufactured  or  imported  by  numbers  of  small  houses,  distant 
from  the  market  and  without  the  financial  resources  to  employ 
a  large  selling  force  of  their  own.  The  canning  of  fruits,  for 
instance,  has  been  carried  on  by  a  number  of  small,  independ- 
ent enterprisers.  The  independent  canner,  at  a  distance  from 
the  large  urban  markets,  would  have  experienced  much 
difficulty  in  negotiating  the  sale  of  his  goods  with  the  various 
wholesalers.  He  stood  a  much  better  chance  of  disposing  of 
his  output  to  the  best  advantage  if  he  hired  a  broker,  in  the 
center  of  trade,  and  in  close  touch  with  the  wholesaler,  to 
sell  his  goods  for  him.  Similarly,  the  wholesaler  found  it 
more  convenient  to  deal  with  the  brokers  than  to  negotiate 
with  a  number  of  canners,  at  a  distance.  The  importers  of 
cofl^ee,  and  other  producers  in  lines  where  the  broker  developed, 
were  in  much  the  same  situation. 

In  the  distribution  of  groceries  the  wholesaler  fulfills  seven 
distinct  functions.  First  and  most  important  is  the  function 
already  mentioned  of  receiving  shipments  in  large  quantities 
from  the  manufacturers.  This  is  practically  universally 
regarded  by  authorities  on  marketing  as  a  necessary  and 
economical  feature  of  the  system.  As  compared  with  the 
alternative  method  of  the  manufacturer  shipping  directly  to 
retailers  in  small  quantities,  it  has  many  advantages.  It  means 
a  saving  in  railroad  freights.  It  saves  much  time  and  labor 
in  the  handling  of  shipments.  It  saves  time  and  labor  in 
packing,  for  every  small  package  does  not  have  to  be  packed 
separately  to  stand  a  long  freight  journey.     For  the  same 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  9 

reason,  it  means  a  saving  in  packing  materials,  and  in  the  wast- 
age of  goods  in  transit. 

The  second  function  of  the  wholesale  grocer  is  to  provide 
within  the  community,  by  storing  these  quantity  shipments, 
a  reservoir  of  food  supplies,  from  which  the  various  articles  may 
flow  out  as  needed.  While  the  expense  of  storage  is  a  cost 
that,  to  some  extent,  offsets  the  various  advantages  of  the 
intervention  of  the  wholesaler,  this  again  is  an  economical 
function.  To  bring  into  a  large  city  every  day  just  the 
quantity  of  grocery  products  which  would  be  purchased  by 
consumers  that  day  would  involve  a  tremendous  number  of 
small  and  expensive  shipments  and  haulings. 

In  the  third  place,  the  wholesaler  must  be  ready  to  furnish 
to  the  retail  stores  the  goods  required,  at  the  times  needed. 
This  means  that  he  must  make  to  the  retail  stores  deliveries  of 
small  quantities  of  goods,  at  short  notice.  It  also  involves 
close  personal  touch  with  the  retailers.  When  the  retailer  has 
a  sudden  call  for  something  which  is  not  in  stock,  or  is  low,  he 
telephones  to  the  wholesaler  and  expects  to  have  the  goods 
delivered  immediately.  When  in  doubt  as  to  what  brand  of 
goods,  or  how  much,  to  buy,  he  frequently  relies  upon  the 
advice  of  the  wholesale  salesman.  If  the  retailer  were  pur- 
chasing directly  from  the  manufacturer,  he  could  not  have 
his  orders  quickly  filled.  He  would  have  to  order  far  in 
advance,  and  wait  a  long  time  for  the  arrival  of  his  goods. 

A  fourth  function  which  the  wholesale  grocer  fulfills,  in  a 
large  majority  of  cases,  is  the  financing  of  the  retail  stores. 
It  is  he  who  furnishes  the  credit  upon  which  the  retailer  oper- 
ates. The  typical  retail  grocer  is  not  a  man  who  is  familiar 
with  modern  methods  of  finance.  Those  who  are  familiar 
with  him  agree  in  stating  that  many  of  the  retailers  in  a  large 
city  are  utterly  ignorant  of  banking  facilities  and  practice. 
Many  of  them  do  not  even  have  bank  accounts.  Many  do 
not  keep  any  kind  of  books.  During  the  war,  the  requirements 
of  the  government  as  to  price  margins  and  taxes  made  it 
practically  necessary  for  the  retailer  to  keep  some  kind  of 
records  of  his  business  transactions.     Various  agencies,  such 


lo  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

as  the  government,  the  associations  of  retail  grocers,  and  of 
wholesale  grocers,  and  food  administrators,  spent  much  effort 
in  instructing  small  retailers  how  to  keep  such  records,  and 
attempting  to  convince  them  of  the  necessity  of  keeping  books. 
This  ignorance,  coupled  with  the  fact  that  the  retailer  usually 
sells  on  credit  to  his  customers,  means  that  he  depends  largely 
upon  the  wholesaler's  extension  of  credit  to  him  for  the  financ- 
ing of  his  business.  It  is  said  that  the  average  retailer  owes 
the  wholesaler  to  an  amount  equal  to  half  his  net  worth. ^ 

The  fifth  function  of  the  wholesale  grocer  is  that  of  regulat- 
ing the  flow  of  commodities  to  the  local  market,  so  that  it  is 
supplied  according  to  its  needs.  This  involves,  on  the  part  of 
the  wholesaler,  a  knowledge  of  local  conditions,  a  knowledge 
of  outside  conditions,  and  ability  to  forecast  demand  and 
supply.  He  must  be  familiar  with  his  local  market,  know  the 
kinds  of  goods  which  it  will  demand  at  various  seasons,  the 
tastes  of  different  sections,  the  character  and  qualities  of 
goods  which  it  favors.  To  supply  it,  he  must  keep  in  touch 
with  the  outside  sources,  know  where  the  desired  goods  can  be 
secured  at  the  best  terms,  what  season  is  the  most  favorable 
for  the  purchase  of  various  products,  and  keep  in  mind  a 
thousand  facts  in  regard  to  prices,  prospects,  and  conditions 
of  supply.  From  these  facts,  he  must  be  able  to  foretell  with 
some  degree  of  accuracy  the  future  conditions  of  demand  and 
supply  of  the  various  goods  he  handles,  not  only  in  his  own 
local  community,  but  also  in  the  whole  outside  market.  One  of 
the  things  for  which  the  small  retailer  depends  upon  the 
salesman  of  the  wholesalers  is  advice  as  to  favorable  times  to 
lay  in  supplies,  probable  future  course  of  prices,  and  the 
wholesaler  who  can  give  this  information  with  a  high  degree 
of  accuracy  has  an  additional  hold  upon  his  retail  customers. 

In  the  sixth  place,  the  wholesale  grocer  must  furnish  the 
business  machinery  to  account  for  the  large  quantities  of  goods. 
Efficiency  and  sound  economy  require  that  the  food  supplies 
which  he  handles  in  such  large  quantities  should  be  subjected 
to  the  more  careful  handling  and  pricing  involved  in  an  ade- 
quate system  of  accounting. 

^  American  Grocer,  Sept.  4,  191 8,  p,  6.    Corroborated  by  local  wholesalers. 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  1 1 

Finally,  the  wholesale  grocer  serves  the  manufacturer  in 
two  important  ways,  by  promoting  the  sales  of  his  goods,  and 
by  introducing  to  the  market  new  products.  It  is,  in  many 
cases,  his  salesmen  who  bring  new  goods  to  the  attention  of 
retailers,  and  secure  the  order  which  make  them  available 
for  the  consuming  public. ^^ 

All  of  these  are  essential  functions  in  our  present  economic 
organization.  They  must  be  performed  by  some  agency; 
perhaps  not  by  the  wholesale  grocer,  but  certainly  by  someone. 
The  wholesale  grocer  may  be,  in  fact,  has  been  eliminated,  to 
some  degree,  in  certain  lines,  but  the  functions  enumerated 
above  are,  in  such  cases,  filled  by  some  other  agency.  Manu- 
facturers may  attempt  to  sell  directly  to  retailers.  If  so,  they 
must  establish  local  warehouses  in  centers  of  distribution,  or 
face  the  cost  of  much  packing  in  small  quantities  and  high 
freight  rates.  One  of  the  charges  brought  against  the  packers 
in  the  present  agitation  is  that  they  are  supplanting  the  whole- 
sale grocers,  and  selHng  not  only  meat  products,  but  also  other 
foods  to  the  retailers.  They,  however,  distribute  their  goods 
thru  their  own  local  warehouses. ^^ 

Retailers  might  pay  cash  directly  to  manufacturers,  but 
this  would  simply  mean  that  the  burden  of  financing  retail 
stores  was  no  longer  shared  by  the  wholesaler,  but  was  borne 
by  the  retailer  himself,  or  by  banking  connections.  Chain 
store  systems  may  operate  their  own  warehouses,  but  they 
must  still,  to  some  degree,  regulate  the  flow  of  commodities 
to  the  community,  and  forecast  the  market  conditions.  Whole- 
sale firms  may,  as  we  shall  see,  dispense  with  salesmen,  but 
then  some  other  device  is  used  for  the  promotion  of  the  sales 
of  goods  and  the  introduction  of  new  goods.  The  question, 
then,  when  we  find  the  activity  of  the  wholesaler  curtailed  in 
some  line  is.  What  agency  is  carrying  on  the  services  which 
the  wholesale  grocer  usually  gives,  and  is  this  agency  doing  the 
wholesaler's  work  more  or  less  efficiently  than  the  wholesaler 
himself.f^ 

^°  Based  in  part  upon  L.  D.  H.  Weld:   The  Marketing  of  Farm  Products,  pp.  61-62. 
^^  Report  of  Federal  Trade  Commission  on  the  Meat  Packing  Industry,  Summary  and 
Part  I,  pp.  41-42. 


CHAPTER  II 

DEVELOPMENTS  THREATENING  THE  POSITION 
OF  THE  WHOLESALER 

In  Philadelphia  at  the  present  time,  there  are  taking  place 
in  the  marketing  of  groceries  a  number  of  developments  which  \ 
result  in  other  agencies  such  as  those  mentioned  in  the  previous  ■ 
chapter  performing  some  of  the  functions  of  the  wholesaler. 
These  developments,  of  course,  mean  a  curtailment  of  the 
business  passing  thru  the  hands  of  the  wholesalers.  One  of 
these  is  the  growth  of  the  chain  store  systems.  These  systems, 
operating  a  number  of  small  retail  stores  in  one  community, 
buy  in  large  quantities  from  the  manufacturers,  and  operate 
their  own  wholesale  warehouses.  In  191 7,  there  were  five 
such  systems  operating  in  Philadelphia,  The  Acme  Tea 
Company,  Childs  Grocery  Company,  Bell  and  Company,  the 
George  M.  Dunlap  Company,  and  Robinson  and  Crawford. 
In  that  year,  these  five  companies  were  merged  into  one 
system,  the  American  Stores  Company.  This  combined 
company  has  a  capital  of  $20,000,000.  It  operates  about 
six  hundred  stores  in  Philadelphia,  and  about  an  equal  number 
outside  the  city.  It  does  a  business  of  about  $60,000,000  a 
year,  none  of  which  goes  thru  the  hands  of  the  wholesalers. 

A  few  months  after  this  merger  was  announced,  another 
chain  system  entered  the  city.  The  Atlantic  and  Pacific  Tea 
Company. 

A  second  factor  making  inroads  upon  the  wholesalers' 
business  is  the  practice  of  some  manufacturers  of  selling  \ 
directly  to  retailers  who  can  give  large  orders.  A  few  have  ! 
tried  the  plan  of  selling  to  all  retailers  directly,  but  a  larger 
number,  apparently,  are  following  the  policy  of  selling  to 
retailers  who  can  take  large  quantities.  The  representatives 
of  large  downtown  retail  grocery  stores  have  stated  that  they 
buy  many  things,  including,  among  others,  breakfast  foods, 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  13 

canned  goods,  and  fancy  goods,  directly  from  the  manufactur- 
ers. 

Allied  to  this  practice  is  the  custom  of  some  manufacturers 
of  giving  the  reduced  quantity  prices  to  all  who  buy  in  quantity, 
whether  or  not  they  are  legitimate  wholesalers.  The  large 
retailers  and  wholesalers  agree  in  stating  that  certain  manu- 
facturers sell  directly  to  large  hotels,  chain  restaurant  companies, 
steamship  lines,  and  other  large  purchasers,  at  the  same  terms 
as  they  give  to  wholesalers. 

A  fourth  way  in  which  trade  is  being  diverted  from  the 
wholesale  grocer  is  thru  the  operation  of  certain  mail  order 
and  premium  firms.  These  either  carry  on  a  mail  order 
business  in  certain  staples,  particularly  tea  and  coffee,  or 
distribute  large  quantities  of  these  articles  as  premiums  for 
coupons  given  with  some  other  article,  or  reward  for  sales  by 
persons  not  regularly  employed  as  salesmen.  The  Jewell  Tea 
Company  represents  the  first  type.  It  carries  on  a  considerable 
business  in  the  sale  of  tea  and  coffee  by  mail.  The  Larkin 
Soap  Company  gives  tea  and  coffee  away  as  premiums,  repre- 
senting the  second  type.  In  an  address  before  the  National 
Coffee  Roasters'  Association  Convention,  at  Atlantic  City,  on 
November  15,  191 6,  Mr.  Paul  M.  Haserodt,  of  Cleveland,^ 
Ohio,  stated  that  the  average  retail  grocer  is  only  selling  forty  ] 
to  fifty  per  cent  of  his  customers  their  coffee.  The  other 
half  is  being  supplied  by  mail  order  houses,  soap  clubs,  and 
premium  companies.^  This  estimate  is  considered  rather  high 
by  those  familiar  with  Philadelphia  conditions,  but  the  latter 
agree  that  this  trade  is  curtailed  by  the  agencies  described. 

A  fifth  agency  which  was  developing  into  a  competitor  of 
the  wholesale  grocer  was  the  big  meat  packer.  The  Report 
of  the  Federal  Trade  Commission  on  the  meat  packing  industry 
revealed  the  fact  that  the  packing  interests  were  operating  a 
wholesale  grocery  business.  It  stated  "Their  branch  houses 
are  not  only  stations  for  the  distribution  of  meat  and  poultry, 
but  take  on  the  character  of  wholesale  grocery  stores,  dealers 

^  Grocers'  Review,  January  1917,  p.  723. 


14  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

in  various  kinds  of  produce,  and  jobbers  to  special  lines  of 
trade. "2  "Recently,  the  big  packers  began  dealing  in  various 
staple  groceries  and  vegetables,  such  as  rice,  sugar,  potatoes, 
beans,  and  coffee,  and  increased  their  sales  at  such  a  rate  that 
in  certain  lines  they  have  become  dominant  factors."^  The 
wholesale  grocers  charged  that  the  packers  had  an  unfair 
advantage  over  them  in  the  handling  of  food  products  from 
the  standpoint  of  transportation.  They  had  their  private 
cars,  which  were  moved  by  the  railroads  as  express  or  "red  balF' 
freight,  while  the  wholesale  grocer  was  getting  his  shipments 
in  regular  freight,  with  its  delays.  Furthermore,  the  packers 
were  able  to  combine  shipments  of  various  commodities  and 
thus  save  in  freight  actually  paid.' 

In  December,  1919,  it  was  announced  that,  as  a  result  of  an 
investigation  of  these  charges  by  a  federal  grand  jury,  the 
packers  had  entered  into  an  agreement  with  the  Department 
of  Justice  to  withdraw  from  those  lines  of  business  not  directly 
connected  with  the  packing  industry  or  animal  products. 
Since  that  time,  the  packers  have  sold  out  certain  of  their 
"sideline"  interests,  and  the  formation  of  new  corporations  to 
take  over  certain  of  their  other  lines  have  been  announced,  as 
for  example  the  formation  of  the  Armour  Leather  Company. 
It  remains  to  be  seen  how  effective  these  new  arrangements 
will  be  in  removing  the  trade  in  other  food  products  from  the 
control  of  the  packing  interests,  and  stopping  the  competition 
of  which  the  wholesale  grocers  have  been  complaining. 

Finally  in  this  hst  of  developments  which  are  threatening'^ 
the  position  of  the  wholesale  grocer,  we  have  the  co-operative  I 
associations  of  retailers  already  mentioned.     The  two  out-  \ 
standing    examples    of    such    associations    in    Philadelphia 
are  the  Girard  Grocery  Company  and  the  Frankford  Grocery 
Company.     These   are  wholesale  grocery  houses  organized, 
owned  and  controlled  by  associations  of  retail  grocers.     A 
brief  sketch  of  the  history  of  these  two  companies  will  illustrate 

«  Report  of  the  Federal  Tr^de  Commission  on    the  Meat-Packing   Industry,  Summary 
and  Part  I,  p.  90. 
3  Ibid.  p.  36. 
*Ibid.  pp.  40-41.         • 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  1 5 

their  methods  and  throw  light  on  the  problem  which  they 
present  to  the  wholesaler. 

The  Girard  Grocery  Company  was  incorporated  as  a  co- 
operative wholesale  grocery  firm  in  January,  1908,  by  members 
of  the  Retail  Grocers'  Association  of  Philadelphia.  It  was  the 
outgrowth  of  a  previous  struggle  between  the  retailers,  and  the 
wholesalers  and  manufacturers.  In  1 892,  some  of  the  members 
of  the  Retail  Grocers'  Association  organized  a  Buyers'  Exchange 
for  co-operative  purchasing.  In  1899,  this  Exchange  was 
purchased  by  the  association,  and  its  advantages  extended  to 
all  members.  It  was  capitalized  in  1903.  It  purchased  in| 
large  quantities  directly  from  the  manufacturers,  giving  its| 
members  the  advantages  of  the  wholesalers'  profit  and  expenses^ 
which  were  thus  saved.  By  this  time,  the  retailers  were  feel- 
ing keenly  the  competition  of  the  chain  store  systems,  and  felt 
that  the  one  salvation  of  the  independent  retailer  was  this 
organization  which  enabled  him  to  secure  his  supplies  at 
somewhat  lower  prices.  The  success  of  the  Exchange  aroused 
the  hostility  of  the  regular  wholesalers.  They  appealed  to 
the  manufacturers  to  refuse  to  sell  directly  to  it  at  wholesale 
prices,  alleging  that  it  was  not  a  legitimate  wholesale  organiza- 
tion. Some  manufacturers  did  adopt  such  a  policy,  and  in 
return,  the  association  pledged  its  members  to  "place  no 
orders  for  specialties  or  new  goods  unless  the  same  be  billed 
thru  the  Retail  Grocers'  Association."  The  solution  of  the 
difficulty,  from  the  standpoint  of  the  retailers,  was  found  in 
the  sale  of  the  Buyers'  Exchange  to  the  separately  incorporated 
Girard  Grocery  Company.  As  this  was  a  distinct  organization 
regularly  incorporated  to  do  a  wholesale  grocery  business, 
the  manufacturers  now  had  no  pretext  for  refusing  to  sell  to  it.^ 

The  Girard  Grocery  Company,  while  organized  as  a  whole- 
sale grocery  house,  has,  since  its  inception,  followed  a  policy 
which  distinctly  differentiates  it  from  the  independent  whole- 
saler. The  stock  of  the  company  is  sold  only  to  members  of 
the  Retail  Grocers'  Association.     Not  all  members  are  stock- 

*  E.  M.  Patterson:     Co-operation  Among  Retail  Grocers  in  Philadelphia,  in  the  American 
Economic  Review,  Vol.  V,  No.  2  (June,  1915),  pp.  289-290. 


1 6  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

holders,  but  all  stockholders  are  members.  It  will  sell  to  any 
purchaser,  but  it  has  never  given  extended  credit.  Its  rule 
has  always  been  that  all  purchases  must  be  paid  for  on  the 
following  Monday.  No  person,  member  or  otherwise,  can 
buy  anything  until  his  bills  for  the  preceding  week  have  been 
settled  in  full.  It  employs  no  salesmen.  It  will  make  no  free 
deliveries  of  goods.  The  purchaser  must  come  for  them  with 
his  own  team  or  truck,  or  pay  a  charge  of  one  per  cent  for 
delivery.  In  the  original  plan,  every  member  of  the  Retail 
Grocers*  Association  was  required  to  subscribe  to  two  shares 
of  stock  in  the  Girard  Grocery  Company,  at  one  hundred  dol- 
lars a  share.  Under  this  arrangement,  every  member  of  the 
association  was  a  stockholder.  In  191 5,  an  energetic  campaign 
was  carried  on  to  increase  the  membership  of  the  association. 
With  this  end  in  view,  the  requirement  for  the  purchase  of 
stock  was  revoked.  Retail  grocers  were  admitted  to  member- 
ship and  to  the  privileges  of  the  Girard  Grocery  Company 
without  putting  in  any  capital.  On  approved  credit,  a  mem- 
ber who  had  no  capital  in  the  company  could  have  the  regular 
terms  of  payment  on  the  following  Monday  for  his  purchases 
of  the  preceding  week.  In  October,'  191 7,  because  of  war 
conditions,  the  association  stopped  taking  in  new  members. 
In  June,  191 8,  new  members  were  again  admitted.  At  present, 
the  credit  arrangements  are  again  more  strict.  No  purchaser 
can  receive  credit  even  until  the  Monday  following  his 
purchases,  unless  he  has  stock  in  the  company,  or  m.oney  in 
the  savings  fund.  The  savings  fund  pays  six  per  cent  interest 
per  annum,  and  the  money  can  be  withdrawn  at  two  weeks* 
notice.  New  members  are  now  required  to  deposit  a  sum  of 
money  in  the  fund.  It  has  proved,  according  to  the  officers 
of  the  association,  much  less  objectionable  to  prospective 
members  to  put  their  money  in  a  savings  fund  from  which  it 
can  be  drawn  on  two  weeks'  notice  than  to  subscribe  to  the 
stock  of  a  corporation.  The  officers  of  the  company  state 
that  no  distinction  is  made  in  any  way  in  regard  to  prices, 
discounts,  or  terms  of  credit  between  the  customers  who  own 
stock  and  those  who  do  not.     Both  have  the  benefit  of  the  low 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  17 

prices  at  which  the  company  sells.  The  only  additional 
advantage  which  stockholders  receive  is  the  payment  of 
dividends  upon  their  stock.  In  191 5,  when  the  membership 
campaign  was  inaugurated,  the  association  had  four  hundred 
and  fifty-three  members  out  of  about  6000  retail  grocery  stores 
in  the  city.  When  it  stopped  taking  in  new  members  in  1917, 
it  had  1758.  During  the  war,  its  membership  fell  to  15 10. 
On  June  30,  191 8,  it  resumed  the  admission  of  new  members, 
and  in  the  year  following,  gained  one  hundred  and  eleven 
members  so  that  on  June  30,  191 9,  its  total  membership  was 
1 62 1.  Its  membership  is  not  confined  to  grocers  in  Philadelphia 
for  it  includes  many  in  the  suburbs  around  the  city,  and  some 
from  outlying  points,  but  the  officers  estimate  that  these  do 
not  amount  to  more  than  one  hundred  and  fifty. 

From  1 910  to  191 5,  inclusive,  the  Girard  Grocery  Company 
paid  dividends  on  its  stock  at  the  rate  of  five  per  cent  per  year. 
In  1916,  it  paid  eight  per  cent;  in  1917,  1918,  and  1919,  ten 
per  cent  each  year.  In  addition,  in  1916  and  again  in  1918, 
it  paid  a  hundred  per  cent  dividend  in  new  stock.  Thus, 
since  1909,  it  has  paid  a  total  dividend  of  270  per  cent.** 

The  balance  sheet  and  income  account  for  the  year  ending 
June  30,  1 91 9,  are  appended  to  this  chapter. 

The  Frankford  Grocery  Company  is  a  similar  organization, 
with  a  similar  history.  In  1893,  The  Frankford  Grocers* 
Exchange  was  organized,  with  twelve  members,  for  co-operative 
buying  from  the  manufacturers.  In  1898,  this  buying  ex- 
change merged  with  the  Frankford  Grocers*  Association,  a 
trade  organization  of  retail  grocer^.  In  1902,  the  Association 
was  incorporated,  and  in  1908,  it  promoted  and  formed,  as  a 
separate  corporation,  the  Frankford  Grocery  Company.  On 
broad  lines,  the  policy  of  the  Frankford  Grocery  Company  is 
similar  to  that  of  the  Girard,  altho  differing  in  detail.  Like 
the  Girard,  it  requires  that  all  purchases  shall  be  paid  for  on 
the  following  Monday,  and  no  one  who  has  not  paid  can  receive 
any  further  credit.  It  further  protects  itself  by  requiring  that 
before  a  member  can  be  allowed  even  this  limited  credit,  he 

^  Grocers'  Review,  August  1919,  pp.  388-394. 


1 8  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

must  invest  in  the  company's  stock,  or  have  a  sum  on  deposit 
in  one  of  two  funds  maintained  by  the  company,  the  three  per 
cent  vacation  fund,  or  the  five  per  cent  savings  fund.  The 
former  is  for  sums  of  less  than  fifty  dollars,  the  latter  for 
larger  sums.  Withdrawal  from  either  is  upon  two  weeks'  notice. 
A  purchaser  can  receive  credit  only  to  the  total  amount  of 
money  he  has  invested  in  stock  and  on  deposit. 

The  Frankford  Grocery  Company  now  makes  free  deliveries, 
but  it  gives  purchasers  who  haul  their  own  goods  from  its 
warehouse  a  discount  of  one  per  cent  on  their  orders.  Further- 
more, it  has  a  regular  schedule  of  deliveries  in  various  sections. 
Each  section  receives  one  delivery  a  week,  on  the  scheduled 
day.  These  are  only  pavement  deliveries.  The  drivers  for 
the  company  are  instructed  not  to  put  goods  in  the  cellars  or 
stores  of  purchasers.  Members  are  expected  to  restrict  their 
orders  to  one  a  week,  ordering  at  one  time  all  they  will  need 
during  the  week.  A  charge  of  twenty-five  cents  is  made  for 
each  extra  order,  and  the  company  will  not  deliver  it. 

The  stock  of  the  Frankford  Grocery  Company  pays  eight 
per  cent  dividends  per  year.  As  with  the  Girard,  not  all 
members  of  the  Frankford  Grocers'  Association  are  stock- 
holders in  the  company,  but  all  stockholders  are  members  of 
the  association.  The  association  has  about  eight  hundred 
members.  The  secretary  estimates  that  ninety  per  cent  of 
these  are  within  the  limits  of  the  city.  Thus  these  two  co- 
operative associations,  with  their  wholesale  companies,  have 
about  1100  of  the  retail  grocers  of  the  city  as  members.  These 
2200  seem  to  include  the  most  successful  and  progressive  retail 
grocers  in  the  city.  The  large  down-town  fancy  grocery 
stores  are  members  of  the  Retail  Grocers'  Association  and 
customers  of  the  Girard  Grocery  Company. 

During  the  year  ending  June  30,  191 9,  the  sales  of  the  Girard 
Grocery  Company  amounted  to  $6,053,417.65;^  and  during 
the  fiscal  year  ending  August  31,  191 9,  those  of  the  Frank- 
ford Grocery  Company  amounted  to  $3,627,509.36  so  that 
the  two  companies  together  did  a  business  of  well  over  nine 

•  Grocers*  Review,  August  1919,  p.  388. 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  19 

and  a  half  million  dollars.  They  occupy  two  of  the  largest 
grocery  warehouses  in  the  city,  each  a  thoroly  modern,  con- 
crete building,  with  direct  railroad  connection. 

Of  the  five  developments  which  are  eating  into  the  position 
of  the  wholesale  grocers  in  the  Philadelphia  district,  the  whole- 
salers themselves  seem  to  be  most  exercised  over  the  growth 
of  the  chain  stores  and  these  co-operative  associations.  They, 
as  a  rule,  will  not  admit  that  their  business  has  been  injured. 
They  state  that  no  wholesalers  have  retired  from  the  field,  or 
been  forced  to  give  up  the  business.  They  allege  that  their 
businesses  are  growing  rapidly.  Yet  there  is  considerable 
evidence  that  they  have  felt  the  pressure  of  the  competition 
of  the  chain  stores  and  associations,  and  have  modified  their 
own  methods  of  doing  business,  in  some  cases,  as  a  result  of 
that  competition. 


20  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 


-  APPENDIX  TO  CHAPTER  II 

balance  sheet  and  income  account  of  the  girard  grocery  company, 
year  ending  june  30,  1919^ 

Receipts 

Capital  account , ^325,700.00 

Capital  account  installment 48,486.30 

374,186.30 
Loans 

Girard  Groc.  Co.  No.  2,  account |i  11,660.00 

Girard  Groc.  Co.  No.  3,  account 27,300.00 

138,960.00 

Bank  loans 1,155,000.00 

Bank  loans,  brokers 1 50,000.00 

1,305,000.00 

Fixtures 36.50 

Liberty  Bonds 53,650.00 

Thrift  Stamps 2,106.93 

Paid  in  surplus 99,350.00 

Equitable  Warehousing  Co.  dividend 882.90 

Bourse  dividend 4.50 

Interest  on  Liberty  Bonds 1,632.37 

Collateral 425.00 

1,976,234.50 

Merchandise 5,865,820.43 

Expense,  Girard  Groc.  Co 7,241.82 

Expense,  Retail  Grocers*  Assn 25,944.76 

7,889,242.37 
'  Grocers'  Review,  August  1919,  pp.  389-400. 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  i\ 


Disbursements 

Capital 168,600.00 

Capital,  installment 23,276.61 

191,876.61 
Loans 

Retail  Groc.  Assn 19,550.00 

Girard  Groc.  Co.  No.  i,  account 10,915.00 

Girard  Groc.  Co.  No.  2,  account 53j35o-oo 

Girard  Groc.  Co.  No.  3,  account 1,800.00 

Trade  notes 47,400.00 

Bank  loans 1,172,500.00 

Bank  loans 1 50,000.00 

1,455,515.00 

Surplus,  Cash  dividend 16,650.00 

Income  and  war  excess  profit  tax  No.  i,  account        51,322.68 
Income  and  war  excess  profit  tax  No.  2,  account        26,588.73 

Federal  Capital  stock  tax 215.50 

Penn.  State  tax 1,251.60 

Penn.  State  tax  3^  of  1%  increased  capital 998.34 

Mercantile 2,883.10 

83,259.95 

Fixtures S-H^l-l'l 

Liberty  Bonds  Girard  Groc.  Co 71,500.00 

Liberty  Bonds  Girard  Groc.  Co 53,650.00 

Thrift  Stamps 2,106.93 

Equitable  Warehousing  Co 20.00 

Collateral 1*617.93 

134,662.59 

Merchandise 5,710,026.51 

Expense,  Girard  Groc.  Co 221,876.90 

Expense,  Retail  Grocers'  Assn 16,045.34 

17,829,912.90 
Balance 59,329.47 

^7,889,242.37 


22  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 


Itemized  Assets 
Balance  $59,329.47 

Fixtures $11,260.25 

Liberty  Bonds 81,500.00 

Equitable  Warehousing  Co 7,982.00 

Ground  rent 1,500.00 

Bourse  stock i  .00 

Collateral 1,192.93 

1103,436.18 
Accounts  Receivable 

Ledger  i 72,326.66 

Ledger  2 46,482.07 

Ledger  3 39^3^1-S^ 

Ledger  4 37,373-4i 

Liberty  Bonds,  amount  due  by 

members 16,718.00 

Thrift  Stamps 627.69 

Grocers*  Review 990.72 


Less  Libby  error. 5,191.42 

Less  Collateral 250.00 

Less  suspense 30.10 


213,886.13 
317,322.31 

5,471-52 


311,850.70 
Merchandise 1,009,095.96 


$1,380,276.22 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  23 


Itemized  Liabilities 

Capital 1490,100.00 

Installment  capital 101,599.64        1591,699.64 

Retail  Grocers  Assn $81,584.00 

Girard  Groc.  Co.  No.  i  account. .  . .  26,232.00 
Girard  Groc.  Co.  No.  2  account. . . .  99,585.00 
Girard  Groc.  Co.  No.  3  account. .  . .   27,300.00      234,701.00 

Corn  Exchange  Bank 75,000.00 

Union  National  Bank 75,000.00       150,000.00 

384,701.00 
Accounts  payable 

Cash  book,  page  243 $129,217.11 

Ledger. 5i>9i5-79 

Penn.  Fire  Ins.  Co 57-67 

Retailers'  Mutual  Fire i39-^9 

New  York  Plate  Glass 2.92 

$181,332.78 
Mutual  Defense i39«oo 

Surplus 8,273.08 

Surplus  paid  in 99,350.00 

Reserve 9,976.00 

117,599.08 
Profit 104,794.72 

$1,380,276.22 


CHAPTER  III 

EFFORTS  OF  THE  WHOLESALERS  TO  MEET  THE 

COMPETITION  OF  THE  CO-OPERATIVE 

ASSOCIATIONS 

I.     Early  Efforts 

The  efforts  of  the  wholesalers  to  meet  the  situation  have 
taken  three  main  lines.  The  earliest  of  these  has  already 
been  mentioned.  It  was  the  attempt  to  persuade  the  manu- 
facturers not  to  sell  at  wholesale  rates  to  any  but  legitimate 
wholesalers.  This,  as  has  been  stated,  met  with  some 
success  in  the  days  of  the  buying  exchanges,  before  the  Girard 
Grocery  Company  was  organized.  Several  companies,  among 
them  the  Natural  Food  Company,  The  Toasted  Corn  Flake 
Company,  Proctor  and  Gamble,  and  the  Diamond  Match 
Company,  refused  to  sell  to  the  exchanges.^  Since  the  organi- 
zation of  the  Girard  Company,  a  few  manufacturers  have 
refused  at  times  to  sell  to  it.  For  some  time,  the  Corn  Prod- 
ucts Company  refused,  but  in  April  191 8,  it  was  announced 
"By  the  gracious  permission  of  the  Corn  Products  Company, 
we  are  again  able  to  list  Karo."^  The  movements  to  be  noted 
under  the  other  methods  which  the  wholesalers  have  tried  have 
occasionally  involved  a  refusal  on  the  part  of  a  manufacturer 
to  sell  to  the  associations,  or  an  agreement  to  give  the  whole- 
salers lower  prices  than  the  associations.  As  a  whole,  however, 
the  attempts  of  the  wholesalers  to  prevent  the  Girard  and 
Frankford  companies  from  securing  products  at  lowest  prices 
have  not  been  successful.  Where  they  have  succeeded,  they 
have  applied  to  new  goods,  for  which  a  demand  was  just 
developing,  usually  in  competition  with  older  and  well  estab- 
lished lines. 

^  E.  M.  Patterson:     Co-operation  among  Retail  Grocers  in  Philadelphia,  in  the  American 
Economic  Review,  Supplement,  Vol.  V,  Number  2  (June  191 5),  p.  290. 
^  Grocers'  Review,  April  1918,  p.  131. 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  25 

2.     The  Wholesale  Grocers'  Sales  Company 

The  second  policy  which  the  wholesalers  have  adopted  in 
their  attempts  to  meet  the  pressure  of  the  competition  of  the 
chain  stores  and  associations  is  the  formation  of  the  Wholesale 
Grocers'  Sales  Company.  This  is  a  corporation  formed  by  the 
wholesale  grocers  of  Philadelphia  to  combine  their  purchases 
from  the  manufacturers.  It  was  organized  i^  November  1916, 
after  the  successful  campaign  of  the  Girard  Grocery  Company 
had  resulted  in  a  large  increase  of  membership.  Its  officers 
state  that  it  was  not  a  direct  result  of  that  growth  in  the  co- 
operative movement  among  the  retailers,  altho  one  admitted 
'Terhaps  that  did  waken  us  up  a  Httle."  However,  the  date 
of  its  development  appears  to  be  significant.  Apparently, 
whether  as  a  result  of  the  campaign  of  the  Girard,  or  not,  the 
wholesalers  were  feeling  a  pressure  which  urged  them  to  adopt 
new  methods  for  carrying  on  their  business.  It  is  also  evident 
that,  in  many  lines,  the  purchases  of  the  individual  wholesalers 
were  not  large  enough  to  secure  for  them  the  most  favorable 
terms  from  the  manufacturers  and  for  freight  shipments. 

There  are  in  Philadelphia  in  the  neighborhood  of  seventy 
firms  carrying  on  a  wholesale  grocery  business.  This  includes 
all  doing  any  type  of  such  business.  Many  of  these  are  com- 
paratively small  firms,  others  are  retail  grocers,  with  a  whole- 
sale department.  The  Wholesale  Grocers'  Sales  Company  is 
composed  of  twenty-four  of  the  larger  wholesale  houses.  It 
does  not,  however,  include  all,  even  of  the  firms  carrying  on 
large-sized  businesses,  in  the  city.  It  is  a  corporation  capital- 
ized at  |2o,ooo,  of  which  j^  16,000  is  paid  up.  All  of  the  stock 
is  held  by  the  twenty-four  wholesale  grocer  members. 

Its  chief  object  is  to  serve  as  a  buying  agency,  thru  which 
the  wholesalers  combine  their  purchases  to  secure  carload  lots. 
The  corporation  has  no  warehouse,  and  does  not  handle  the 
goods  itself.  It  handles  the  orders  and  accounts  and  payments 
for  the  goods,  but  upon  the  arrival  of  a  carload  ordered  by  it, 
it  notifies  the  individual  members.  These  haul  the  goods  to 
their  own  warehouses.     The  members  are  charged  just  what 


26  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

the  Sales  Company  pays  for  the  goods,  plus  one  per  cent  to 
cover  the  costs  of  handling  the  goods.  Its  policy  is  to  require 
its  members  to  pay  within  ten  days  from  the  receipt  of  a  ship- 
ment, while  it  itself  has  thirty  days  in  which  to  pay  the  manu- 
facturers. The  company,  as  such,  is  not  operated  for  profit, 
and  pays  no  dividends.  The  members  receive  their  dividends  or 
profits  in  the  form  of  the  reduced  prices  and  freight  savings 
on  their  goods. 

The  savings  from  this  plan  are  two-fold.  In  the  first  place, 
many  manufacturers  have  lower  rates  on  carload  lots  than  on 
on  smaller  quantities.  Thus,  thru  combining  their  purchases 
into  such  lots,  the  wholesalers  are  able  to  secure  small  quanti- 
ties of  goods  at  the  most  favorable  prices  for  large  shipments. 
In  the  second  place,  the  freights  on  such  shipments  are  smaller 
than  they  would  be  on  the  same  quantity  of  goods  sent  as 
twenty-four  separate  shipments.  From  both  of  these  stand- 
points, the  plan  of  the  Sales  Company  seems  to  represent  a 
sound  and  economical  method  of  purchasing.  The  members 
estimate  that  they  save,  on  the  average,  about  five  per  cent 
on  their  purchases  made  thru  the  company. 

It  will  be  noticed  that  this  plan  represents  a  new  tendency 
to  separate  the  wholesaling  and  jobbing  processes  along  the 
lines  described  earlier.  The  Wholesale  Grocers'  Sales  Com- 
pany takes  the  place  of  the  old  type  of  wholesaler,  bringing  the 
goods  in  from  outside,  while  the  wholesale  grocers  as  individuals 
become  simply  jobbers  in  the  original  sense,  selling  to  the 
retail  trade. 

Further,  it  is  an  adoption  by  the  wholesalers  of  very  much 
the  same  device  which  the  retailers  are  using  so  successfully 
in  The  Girard  and  Frankford  Companies.  In  both  plans,  a 
number  of  merchants  are  combining  their  purchases  in  a  co- 
operative corporation  owned  by  them  and  their  associates,  for 
the  purpose  of  securing  goods  at  the  lowest  possible  prices. 
Both  plans  require  prompt  payment  from  purchasers.  Both 
reduce  the  services  which  they  perform  to  the  minimum,  and 
carry  on  their  business  with  the  utmost  possible  simplicity  of 
organization. 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  i-j 

On  the  other  hand,  there  are  certain  differences  in  the  plans 
of  the  retailers  and  those  of  the  wholesalers.  Perhaps  the  most 
fundamental  is  the  fact  that  the  Girard  and  Frankford  Com- 
panies seek  to  anticipate  the  needs  of  the  retailers,  and  to 
supply  the  trade  with  goods  as  they  are  required:  while  the 
Wholesale  Grocers'  Sales  Company  makes  no  effort  to  do  this. 
It  only  orders  goods  which  are  already  disposed  of  to  its 
individual  members.  Each  week,  the  members  hold  a  meet- 
ing, and  at  these  meetings,  their  needs  are  discussed.  Before 
a  shipment  of  goods  is  ordered,  it  is  known  that  it  will  all  be 
taken  immediately  upon  arrival  by  the  various  members,  and 
the  share  which  each  will  take  is  decided.  The  purchases  of 
the  co-operative  association  are  made  in  advance  of  sales  to 
retailers  or  orders  from  them.  The  Girard  and  Frankford 
are  independent  businesses,  buying  and  selling  for  their  own 
accounts,  while  the  Wholesale  Grocers'  Sales  Company  is 
little  more  than  a  purchasing  agent  for  a  group  of  grocers, 
executing  their  orders  for  them.  In  this  it  resembles  the  buy- 
ing exchanges  which  were  the  forerunners  of  the  Girard  and 
Frankford.  As  a  result,  we  have  the  different  method  of 
handling  the  goods,  the  Girard  and  Frankford  having  their 
own  warehouses,  in  which  shipments  are  stored  and  drawn 
upon  as  needed,  while  the  Sales  Company  has  no  warehouse 
and  sends  its  shipments  directly  to  the  warehouses  of  members. 

The  cause  for  these  differences  lies  in  the  differing  character 
and  size  of  the  membership  of  the  two  types  of  organizations. 
The  Sales  Company  consists  of  a  small  group  of  men,  closely 
co-operating.  The  Girard  and  Frankford  Companies  include 
large  groups  of  widely  scattered  members.  Where  it  is  per- 
fectly possible  for  representatives  of  twenty-four  grocery 
firms  to  come  together  and  work  out  combination  orders,  and 
the  percentages  which  they  will  take,  it  would  be  an  impos- 
sibility for  seven  hundred  or  more  to  do  so.  This  was  the  plan 
actually  followed  by  the  retailers'  exchanges  in  the  days  when 
they  had  but  few  members.  As  they  grew,  it  became  necessary 
to  have  a  central  warehouse,  and  to  buy  goods  in  anticipation 
of  the  wants  of  the  members. 


28  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

From  this  difference  springs  another,  the  varying  poHcy  in 
regard  to  dividends.  Being  organized  as  regular  corporations, 
buying  and  selHng,  the  co-operative  companies  naturally  pay 
dividends  to  the  stockholders.  With  the  small  membership, 
the  method  of  purchasing  which  insures  the  advantages  of  the 
company  to  all  in  equal  measure,  and  the  fact  that  all  who 
deal  with  it  are  stockholders,  the  Sales  Company  has  no  neces- 
sity for  the  payment  of  dividends.  Its  advantages  are  equit- 
ably divided  thru  the  lower  prices  which  it  secures. 

Ostensibly,  this  is  all  that  the  Wholesale  Grocers'  Sales 
Company  is — an  organization  for  the  combining  of  orders 
into  large  quantities  to  secure  favorable  terms.  As  a  matter 
of  fact,  it  seems  to  amount  to  something  somewhat  more  signifi- 
cant than  this.  The  members  co-operate,  not  only  in  the 
purchasing  of  supplies,  but  also  in  other  ways.  At  their 
weekly  meetings,  various  other  problems  which  they  are  facing 
are  discussed.  Among  these  problems,  the  prices  to  be  charged 
figure.  One  of  the  officers  of  the  company  stated,  "We  discuss 
prices,  as  far  as  we  legally  can.  Of  course,  we  cannot  make 
binding  agreements  fixing  prices,  but  one  man  will  say  what 
he  thinks  is  a  fair  price  to  charge  for  a  certain  article,  and  the 
others  will  say  what  they  think  about  it,  so  we  will  know  pretty 
well  how  we  feel  about  it,  and  what  the  various  grocers  are 
going  to  do." 

Another  way  in  which  the  members  of  the  Sales  Company 
co-operated  was  in  selling  campaigns  on  certain  special  articles. 
These  were  used  to  introduce  to  the  Philadelphia  market  new 
goods,  which  had  not  been  sold  to  any  extent  there  before. 
The  twenty-four  wholesalers  had,  in  the  Philadelphia  district, 
254  salesmen.  The  plan  of  the  selling  campaigns  was  to  have 
each  one  of  these  salesmen  make  a  particular  effort  to  sell  the 
given  commodity  to  the  retailers,  during  a  given  period.  Thru 
the  concentrated  efforts  of  the  salesmen  of  the  co-operating 
wholesalers,  large  quantities  of  the  article  would  be  sold. 
These  large  quantities  would  be  purchased  thru  the  Wholesale 
Grocers*  Sales  Company.  The  wholesalers  maintain  that  the 
results  of  such  united  campaigns  were  remarkably  successful, 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  29 

in  many  cases.  A  newspaper  account  of  one  of  them  states, 
that  in  the  promotion  of  the  sales  of  "a  certain  trade-marked 
cereal,"  "Two  years  ago  the  manufacturer,  on  his  own  efforts, 
sold  five  cars.  Last  year,  dealing  thru  the  association,  the 
sales  were  twenty-four  cars.  Since  September  first,  twenty- 
five  more  cars  have  been  taken,  and  in  addition,  there  are 
fifteen  more  on  order.  Buying  in  such  quantities  has  meant 
a  startling  saving  in  freight  charges,  as  well  as  a  discount  for 
promotion  work,  which  is  costing  the  association  practically 
nothing,  by  the  way."^  The  association  here  referred  to  is  the 
Wholesale  Grocers'  Sales  Company. 

In  August,  1 91 7,  another  plan  was  tried.  This  was  to 
give  certain  retailers  who  were  accustomed  to  purchase  a  good 
proportion  of  their  supplies  from  the  members  of  the  Sales 
Company,  specially  low  prices  on  certain  staple  lines  of  goods. 
The  retailers  were  then  to  sell  these  goods  to  the  public  at 
special  or  "cut"  prices.  Here  again  the  grocers  composing  the 
Sales  Company  were  working  together.  At  their  conferences, 
they  would  decide  on  what  articles  to  give  special  prices  dur- 
ing a  given  time,  and  all  would  co-operate  in  selling  to  the  re- 
tailers at  the  agreed  low  price  during  that  time.  The  object 
of  this,  of  course,  was  to  enable  the  retailers  to  meet  the  bar- 
gains offered  by  the  chain  stores,  by  themselves  offering  cut- 
price  specials.  Very  likely,  it  was  also  hoped  that  it  would 
enable  the  grocers  buying  from  the  wholesalers  to  offer  bar- 
gains which  the  Girard  and  Frankford  could  not  enable  the 
retailers  to  give.  The  result  of  this  might  be  expected  to  be  to 
weaken  the  allegiance  of  the  retailers  to  those  two  organiza- 
tions, and  win  from  them  favor  for  the  wholesalers. 

3.     The  Community  Stores  Company 

Out  of  these  last  two  activities  of  the  Wholesale  Grocers* 
Sales  Company  grew  the  third  of  the  policies  which  the  whole- 
salers have  tried  in  their  attempts  to  meet  the  competition 
of  the  chain  stores  and  retailers'  associations.     This  was  the 

'The  Philadelphia  Public  Ledger,  Oct.  11,  1917,  p.  15.  "Grocers  Unite  to  Beat  Chain 
Store  Methods." 


30  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

Community  Stores  Company.  It  will  be  noticed  that  the  two 
plans  of  the  Wholesale  Grocers*  Sales  Company  described 
above  had  no  provision  for  any  wide  appeal  to  the  public, 
calling  attention  to  the  stores  at  which  the  advertised  or  the 
specially  priced  goods  could  be  obtained.  The  salesmen  of 
the  wholesalers  might  persuade  the  retailers  to  purchase  "a 
certain  trade-marked  cereal'*  and  that  cereal  would,  at  the 
same  time  be  advertised  in  the  Philadelphia  papers,  but  the 
public  who  read  and  responded  to  the  advertising  might 
inquire  for  it  at  chain  stores,  or  grocery  stores  not  carrying  it. 
The  advertising  did  not  link  the  new  product  up  with  the 
retail  stores  which  were  handling  it.  In  the  same  way,  the 
cut-price  specials  could  not  be  very  effectively  advertised. 
To  fill  this  gap  in  the  plan,  apparently,  the  Community  Stores 
Company  was  organized. 

The  Community  Stores  Company  was  a  corporation  formed 
by  the  Wholesale  Grocers'  Sales  Company.  It  was  capitalized 
at  $5000,  and  the  stock  was  all  subscribed  by  the  twenty-four 
members  of  the  Sales  Company.  As  stockholders,  they 
elected  the  officers,  and  six  directors  of  the  company.  The 
"Community  Stores,"  however,  were  retail  stores.  A  retailer 
became  a  member  by  the  payment  of  a  fee  of  ten  dollars  per 
year.  His  membership  gave  him  no  voice  in  the  management 
of  the  company,  or  in  the  election  of  officers  or  directors.  In 
return  for  his  fee,  the  retailer  received  a  large  yellow  decalco- 
mania  sign,  which  he  displayed  upon  his  window,  saying 
"Community  Store  We  Serve  You  Save"  and  he  was 
entitled  to  the  special  prices  on  certain  lines  of  goods  which 
the  wholesalers  gave  in  accordance  with  the  plan  already 
described,  or  to  the  handling  of  the  advertised  brands. 

The  Community  Stores  Company  was  organized  in  the  fall 
of  1 917.  At  the  time,  it  secured  considerable  publicity  in  the 
newspapers,  and  many  promises  and  predictions  as  to  its 
achievements  were  made.  It  was  announced  that  it  would 
secure  the  greatest  co-operation  of  effort  without  in  any  way 
interfering  with  the  independence  of  co-operating  stores  and 
firms.     It  was  to  "bring  to  bear  the  economies  of  the  chain 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  31 

Store  system  coupled  with  the  incentive  to  real  service  which 
exists  where  the  store  is  under  the  management  of  the  owner 
rather  than  a  salaried  superintendent;  in  that  its  aim  is  to 
present  to  the  consumer  every  advantage  in  price  without  the 
disadvantage  of  non-delivery  and  no  telephone  service."  It 
was  to  promote  the  interests  of  the  consumer  by  giving  him 
lower  prices.  It  was  to  promote  that  of  the  retailer  by  increas- 
ing his  turnover,  by  drawing  customers  to  his  stores  thru  the 
cut-price  specials,  and  by  linking  up  his  store  with  a  vigorous 
advertising  campaign  in  the  papers.  It  was  to  promote  the 
interests  of  the  manufacturers  by  giving  them  the  united 
efforts  of  the  two  hundred  and  fifty-four  salesmen,  visiting  the 
retailers  of  the  city  each  week,  for  the  promotion  of  the  sales 
of  their  products.  It  was  to  benefit  the  wholesalers  by  increas- 
ing their  sales  volume  and  buying  power.  It  was  to  assist  the 
Food  Administration  by  having  the  salesmen  act  as  messengers, 
carrying  the  messages  of  the  Administration  to  the  retailers 
each  week  by  direct  personal  contact.  It  was  prophesied 
that  it  would  result  "in  a  country-wide  revolution  in  distribut- 
ing methods."^ 

Both  the  Girard  Grocery  Company  and  the  Frankford 
Grocery  Company  were  invited  to  join  the  movement,  but 
refused. 

The  methods  which  the  Community  Stores  Company  used 
to  accomplish  these  aims  were  substantially  the  two  described 
in  connection  with  the  Sales  Company — giving  low  prices  on 
certain  specials,  and  carrying  on  special  selling  drives  on 
certain  new  brands.  But  now  these  were  widely  advertised 
in  the  newspapers,  with  the  statement  in  prominent  lettering 
**These  goods  can  be  purchased  at  Community  Stores."  These 
advertisements  sought  to  establish  the  Community  Store  as 
a  trade-mark  in  the  minds  of  the  public.  The  services  given 
by  Community  Stores  were  emphasized  at  a  time  when  the 
chain  stores  were  abolishing  free  deliveries  and  having  the 
telephones  removed  from  their  stores.  The  public  was  urged 
to  patronize  stores  showing  the  Community  sign.    The  specials, 

*  The  Philadelphia  Public  Ledger,  op.  cit. 


32  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

on  which  cut  prices  were  given,  were  widely  announced. 
The  cost  of  this  advertising,  it  is  stated  by  those  connected 
with  the  Community  Stores  Company,  was  borne  by  the 
wholesalers,  and  by  the  manufacturers  of  the  advertised 
commodities.  The  ten  dollars  dues  collected  from  the  retail 
members  did  not  come  anywhere  near  meeting  the  expenses. 

Each  week,  one  or  more  specials  at  cut  prices  would  be 
advertised.  The  wholesalers  sold  these  goods  to  the  retailers 
at  cost,  or  in  some  cases,  at  an  actual  loss.  The  retailers  were 
then  expected  to  sell  them  to  the  public  at  the  price  which  they 
paid.  Meanwhile,  the  special  reductions  were  advertised,  with 
the  slogan,  "Can  be  purchased  at  Community  Stores."  The 
special  price  would  hold  good  for  one  week  only,  and  the 
attempt  was  made  to  see  that  the  retailers  only  received  enough 
to  meet  their  demands  for  that  one  week.  Some  of  the  articles 
offered  at  special  prices  under  this  plan  were  Babbit's  Soap, 
sold  by  the  Community  Stores  for  frve  cents  a  cake,  when  the 
regular  price  was  seven  cents;  Lux,  sold  for  ten  cents,  regular 
price,  twelve;  Campbell's  soups,  sold  at  three  for  twenty-five 
cents,  regular  price  twelve  cents  a  can;  Snow  Boy,  sold  at  two 
for  nine  cents,  regular  price,  six  cents  a  package;  Gulden's  Mus- 
tard, sold  at  twelve  cents,  regular  price,  fifteen.  In  some  cases, 
because  of  the  large  quantities  purchased,  the  manufacturers 
allowed  the  Sales  Company  special  rates  on  these  goods.  In 
others,  they  were  actually  sold  at  a  loss  to  the  wholesalers. 
It  is  stated  that  such  was  the  case  with  the  Campbell's  soups 
special.  The  wholesalers  paid  $1.05  a  dozen  cans  for  it,  sold 
it  to  the  retailers  for  Ji.oo,  while  the  retailer  sold  it  at  the  same 
price. 

Of  course,  these  prices,  even  when  they  did  not  involve  an 
actual  reduction,  as  in  this  case,  were  handled  without  cover- 
ing their  share  of  the  overhead  expenses.  The  wholesalers 
maintain  that  no  effort  was  consciously  made  to  make  up  this 
loss — that  they  relied  upon  the  increased  volume  of  their  sales 
along  other  lines  to  make  it  up.  Some  of  the  retailers  who  were 
members  of  the  Community  Stores  do  not  agree  with  this. 
They  feel  that  the  wholesalers  tried  to  cover  their  losses  by 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  i,2> 

putting  up  the  price  of  other  goods.  The  wholesalers  also 
officially  stated  that  a  retailer  would  not  be  expected  to  purchase 
other  goods  from  them  because  he  joined  the  Community 
Stores,  and  took  their  specials.  One  of  the  statements  issued 
during  the  publicity  campaign  by  the  officers  of  the  Community 
Stores  Company  says,  "The  retail  dealer  maintains  complete 
independence.  He  is  not  obliged  in  any  way  to  purchase  his 
other  goods  from  the  wholesalers  who  are  members  of  the 
Community  Stores.  In  fact,  their  constant  advice  to  the 
retailer  is,  Buy  where  you  can  get  the  best  and  cheapest."^ 
The  writer  has  been  informed  by  some  of  the  retailers  that 
they  felt  that  the  attitude  of  the  wholesale  salesmen  was  that 
if  you  took  the  specials  offered  by  the  Community  Stores 
Company,  you  were  under  an  obligation  in  fair  dealing  to  pur- 
chase other  goods  from  the  wholesalers  who  were  backing  it. 
The  second  line  of  activity  of  the  Community  Stores  Com- 
pany, that  of  concerted  efforts  to  sell  certain  brands  of  goods, 
was  worked  out  in  co-operation  with  the  manufacturers  of  such 
goods.  The  wholesalers  would  point  out  to  a  manufacturer 
considering  the  exploitation  of  the  Philadelphia  field  that  the 
conditions  there  were  highly  complicated.  It  might  be 
admitted  that  the  Girard  and  Frankford  Companies  and  the 
chain  stores  controlled  a  good  sized  section  of  the  trade.  But 
it  would  be  pointed  out  that  these  agencies,  and  especially,  the 
Girard  and  Frankford,  have  no  salesmen,  and  therefore,  could 
not  push  his  goods  very  effectively.  If  he  sought  to  distribute 
his  goods  thru  them,  he  would  in  all  probability  have  to 
employ  a  force  of  salesmen  of  his  own  to  introduce  his  goods  to 
the  retail  trade.  On  the  other  hand,  the  regular  wholesalers 
have  a  complete  force  of  salesmen,  who  will  push  the  goods  of 
manufacturers  who  distribute  thru  them.  To  that  extent 
they  do  more  service  for  the  manufacturer  than  do  the  Girard 
and  Frankford.  Therefore,  the  wholesalers  would  argue, 
they  should  be  given  the  sole  handling  of  the  goods,  or  receive 
lower  discounts  than  the  co-operative  associations.     If  this 

^The  Philadelphia  Public  Ledger,  Mar.  ii,  1918,  p.  11,  Independent  Grocers  Boost  Their 
Business. 


34  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

appeal  convinced  the  manufacturer,  he  entered  into  a  special 
arrangement  with  the  Wholesale  Grocers'  Sales  Company. 
These  agreements  usually  seem  to  have  had  two  important 
provisions.  The  Sales  Company  was  made  the  sole  selling 
agent  for  the  product  in  the  Philadelphia  territory,  and  was 
given  a  special  discount.  In  return,  the  wholesalers  comprising 
the  Sales  Company  were  to  take  carload  or  train  load  lots  of 
the  goods,  and  carry  on  a  concerted  campaign  thru  their 
salesmen  to  sell  the  goods  to  the  retailers.  A  feature  of  this 
campaign  would  be  advertising  of  the  product  on  the  Com- 
munity Store  pages  in  the  daily  press.  This  advertising  was 
usually  paid  for  by  the  manufacturer.  The  retailers,  on  their 
part,  were  expected  to  display  the  currently  advertised  goods 
prominently  on  their  shelves  and  counters  and  in  their  windows, 
and  to  make  special  efforts  to  sell  them  to  their  customers. 

The  objects  which  the  wholesalers  hoped  to  promote  thru 
this  plan  appear  to  have  been  four  in  number.  They  expected 
to  attract  customers  to  the  Community  Stores  thru  their 
advertising  campaign,  special  prices,  and  new  lines.  This 
would  increase  the  volume  of  sales  passing  thru  the  hands  of 
the  wholesalers.  It  would  bring  the  retailers  into  closer 
dependence  upon  them.  At  the  same  time,  it  would  secure 
fbr  the  wholesaler  the  support  of  manufacturers.  In  these 
ways,  it  would  strengthen  them  in  their  struggle  with  the  chain 
stores  and  co-operative  associations. 

The  wholesalers  claim  for  this  plan  phenomenal  increases  in 
the  sales  of  certain  goods.  For  instance,  they  state  that  in 
five  years,  450  cases  of  Holland  Rusks  were  sold  in  the  city, 
an  average  of  90  a  year.  In  nine  months  under  the  Community 
Stores  arrangement,  5000  cases  were  sold.  One  of  the  goods 
which  was  introduced  to  the  Philadelphia  market  in  this  way 
was  Miss  Princine  Baking  Powder.  Seven  carloads  were 
taken  by  the  Wholesale  Grocers'  Sales  Company  at  one  time, 
and  disposed  of  to  retailers  thru  the  Community  Stores 
Company.  When  asked  if  the  increases  in  sales  in  such 
commodities  as  these  were  accompanied  by  falling  off  of  the 
sales  of  other  competing  lines,  as  for  instance  in  other  lines  of 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  2S 

baking  powder,  the  officers  of  the  Sales  Company  replied, 
"Well,  I  suppose  in  some  cases,  they  probably  were,  but  in 
others,  like  Holland  Rusks,  they  were  not.  On  the  other  hand, 
the  chain  stores  and  other  stores  which  did  not  carry  Miss 
Princine  were  met  by  constant  demands  for  it." 

There  are  two  significant  facts  to  be  noted  in  regard  to  this 
plan.  In  the  first  place,  it  was  applied  only  to  special  goods' 
which  were  not  widely  known,  and  were  being  introduced.  Inj 
the  second  place,  it  was  based,  in  its  appeal  to  the  manufacturers 
for  the  special  rates  or  sole  agency,  upon  the  fact  that  the 
Girard  and  Frankford  Companies  have  no  regular  salesmen. 
This,  from  the  standpoint  of  the  introduction  of  new  goods,  is 
admittedly  a  weakness  in  the  co-operative  associations.  To 
meet  this  weakness  in  some  measure,  both  the  Girard  and 
Frankford  have  a  small  force  of  special  salesmen.  In  the  case 
of  the  Frankford,  the  number  is  four.  Upon  the  payment  of 
twenty-five  dollars  a  week  per  man,  a  manufacturer  can  have 
the  services  of  these  salesmen  to  introduce  his  goods  to  the 
members  of  the  company.  Each  salesman  handles  four 
articles  at  a  time,  making  a  hundred  dollars  a  week  received 
by  the  company  for  the  services  of  each  man.  Thru  this 
arrangement,  the  manufacturer  secures  the  services  of  expert 
salesmen,  thoroly  acquainted  with  the  local  retailers,  coming 
to  the  latter  as  the  representatives  of  their  own  association  and 
therefore  well  received  by  them,  and  at  a  comparatively  low 
cost.  At  the  same  time,  he  is  paying  extra  for  services  which 
the  wholesalers  give  him  free. 

The  wholesalers  argue  that  time  after  time,  they  take  up  a 
new  article,  push  it  vigorously  thru  their  salesmen,  establish 
a  market  for  it;  then,  when  a  good  steady  demand  for  it  has 
been  created  thru  their  efforts,  the  co-operative  associations 
begin  to  handle  it,  and  sell  it  at  lower  prices  than  can  the  regu- 
lar wholesalers,  with  their  higher  expenses.  The  wholesalers 
have  done  all  the  work,  and  then  the  Girard  and  Frankford 
get  the  profitable  end  of  the  trade. 

In  addition  to  these  activities,  the  wholesalers  planned  to 
have    the    Community    Stores    Company    carry    on    certain 


26  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

advisory  and  educational  activities  for  the  benefit  of  the 
retailers.  It  was  to  give  them  suggestions  as  to  store  manage- 
ment and  system,  establish  a  collection  agency,  and  furnish 
information  in  regard  to  trade  conditions,  the  rulings  of  the 
Food  Administration,  and  so  forth.  It  does  not  appear  to 
have  actually  developed  this  phase  of  the  plan  to  any  extent. 

The  Community  Stores  plan  as  described  above  was  in 
operation  for  about  a  year.  On  December  29,  191 8,  the  news- 
papers announced  that  the  Community  Stores  Company  had 
gone  out  of  existence.  With  the  close  of  the  year,  it  wound  up 
its  affairs,  gave  up  its  offices,  and  ceased  its  activities.  Of 
course,  the  individual  retail  grocers  who  had  formed  the 
"membership"  were  still  in  existence,  still  doing  business  as 
usual.  The  Wholesale  Grocers'  Sales  Company  likewise  still 
continues  its  activities.  But  the  Community  Stores  as  a 
brand  on  the  windows  of  the  retailers  has  no  longer  any  signifi- 
cance, and  the  advertising  campaigns  are  no  longer  carried  on. 
The  revolution  in  distributing  methods  promised  at  the  time  of 
formation  had  not  occurred.  Even  with  due  allowance  for  the 
vivid  coloring  of  its  prospects  by  publicity  managers,  it  had 
not  accomplished,  apparently,  what  its  promoters  had  expected 
of  it.  It  had  enlisted  1600  of  the  retail  grocers  of  the  city  as 
members,  including  many  who  were  members  of  the  Philadel- 
phia or  Frankford  Associations,  and,  presumably,  bought 
much  of  their  material  from  the  Girard  or  Frankford.  It  had 
phenomenally  increased  the  sales  of  various  articles.  What, 
then,  were  the  causes  for  its  demise? 

An  inquiry  conducted  among  the  officers  and  wholesale 
members  of  the  company,  the  officers  of  the  Girard  and  Frank- 
ford, and  a  comparatively  small  number  of  the  retailers  con- 
nected with  the  movement,  has  elicited  a  number  of  opinions 
as  to  the  cause  of  its  abandonment.  It  will  be  noticed  that  we 
do  not  say  "failure.**  The  officers  of  the  company,  who  are 
also  the  officers  of  the  Sales  Company,  say  that  it  was  not  a 
failure.  In  a  certain  sense,  they  argue,  it  was  very  successful. 
In  another  phase  they  are  willing  to  admit  it  did  not  succeed. 
That  lack  of  success  they  attribute  to  five  difficulties  which 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  37 

the  plan  encountered.  In  the  first  place,  they  state  that  much 
difficulty  was  found  in  making  up  the  cut-price  specials, 
because  of  the  varied  nature  of  the  trade  in  the  city.  The 
Community  Stores  were  located  in  all  parts  of  the  city,  in 
neighborhoods  of  very  different  characters.  Some  were  in 
exclusive  residential  districts.  Others  were  in  middle  class 
districts,  or  in  districts  where  they  catered  to  lower  income 
groups.  Some  were  in  the  various  foreign  districts — Jewish, 
Polish,  Italian,  Negro,  and  those  of  other  nationalities.  The 
wants,  needs,  and  tastes  of  these  groups  differ  very  greatly. 
Thus,  a  special  that  would  make  a  strong  appeal  to  the  cus- 
tomers in  one  section  of  the  city  would  make  no  appeal  what- 
ever to  those  of  some  other  neighborhoods.  Retailers  in  one 
part  of  the  city  would  find  their  trade  much  increased  by  a  low 
priced  article,  while  those  elsewhere  would  find  the  same  article, 
even  at  the  low  price,  a  drug  on  the  market.  As  much  of  the 
effectiveness  of  the  plan  depended  upon  the  advertising, 
which  in  the  nature  of  the  case,  had  to  be  the  same  thruout 
the  city  at  one  time,  this  was  a  serious  handicap.  They  could 
not  very  well  afford  to  run  each  week  a  list  of  several  cut-price 
articles,  which  would  meet  the  tastes  of  each  group  of  the 
population.  Running  and  advertising  only  one,  in  many  cases, 
made  a  very  limited  appeal. 

In  the  second  place,  the  officers  of  the  company  state  that 
much  difficulty  was  experienced  in  securing  sufficient  quantities 
of  goods,  both  for  the  specially  priced  articles,  and  for  the 
brands  which  were  being  definitely  pushed.  This  was  due  to 
transportation  conditions.  At  times,  they  say,  it  was  almost 
impossible  to  get  goods  in  sufficient  quantities  to  make  up 
the  specials  for  the  next  weeks.  They  were  reduced  to  the 
device  of  finding  commodities  of  which  the  members  of  the 
Sales  Company  already  had  large  supplies  on  hand  in  their 
warehouses,  and  from  these  making  up  specials.  This,  of 
course,  meant  that  they  had  to  bear  all  the  burden  of  the  low 
price  themselves,  or  else  could  not  offer  very  substantial 
reductions,  for  they  had  depended  upon  saving  in  transporta- 


38  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

tion  charges  on  large  shipments,  and  low  prices  on  quantity 
from  the  manufacturers  to  assist  them  in  giving  low  prices. 

A  third  reason  assigned  by  the  wholesalers  for  the  lack  of 
success  of  the  plan  is  the  opposition  of  the  Girard  and  Frank- 
ford,  and  the  officers  of  the  associations.  As  has  been  stated, 
these  two  corporations  were  invited  to  join  the  Community 
Stores  plan,  but  refused.  The  officers  of  the  Sales  Company 
state  that  the  Girard  and  Frankford  seemed  to  feel  that  the 
object  of  the  movement  was  to  discredit  these  co-operative 
companies.  The  wholesalers  stoutly  aver  that  they  had  not 
the  least  idea  of  any  such  intention.  They  state  that  the 
officers  of  the  associations  tried  to  prevent  their  members  from 
joining  the  Community  Stores,  and  that  in  order  to  do  this  they 
told  the  retailers  that  the  real  purpose  of  the  plan  was  to  break 
up  the  associations  and  put  the  Girard  and  Frankford  out  of 
business.  Then,  when  the  wholesalers  had  the  city  to  them- 
selves again,  they  would  put  up  prices  on  the  retailers.  Perhaps 
the  officers  of  the  two  associations  were  not  putting  it  just 
this  way,  but  the  fact  that  they  were  hostile  to  the  Community 
Stores  plan  is  amply  shown  by  the  articles  published  in  their 
official  magazine,  the  "Grocers'  Review."  In  March,  191 8,  in 
the  section  devoted  to  the  Frankford  Grocers'  Association, 
there  appeared  the  following  editorial  statement: 

One  of  the  latest  associations  to  make  its  bow  to  the  retail  grocer  is 
the  Community  Stores  Company.  As  we  understand  it,  this  company 
is  formed,  owned,  and  controlled  by  the  Wholesale  Grocers'  Sales  Com- 
pany and  their  objects  are  as  follows:  To  control  for  themselves,  the 
wholesalers,  the  output  of  as  many  advertised  brands  as  possible,  so 
that  the  chain  stores  and  jobbers  not  affiliated  with  them  cannot  secure 
or  sell  these  articles  at  a  price  lower  than  themselves,  thereby  obtaining 
for  themselves  whatever  profits  they  may  decide  upon.  They  proposte 
to  arrange  for  the  retail  grocer  affiliated  with  them,  a  special  from  time 
to  time,  which  the  grocers  will  advertise  and  sell  at  manufacturer's  cost, 
the  jobbers  to  furnish  these  articles  to  the  retailers  without  profit  to 
themselves. 

They  also  propose  to  furnish  the  grocer  with  store  signs,  a  collection 
department,  advice  on  system,  etc.  In  return  for  this  service,  we  under- 
stand that  they  expect  the  retail  grocer  to  pay  the  sum  of  1 10.00  per 
year  for  membership,  to  publish  their  specials,  to  push  the  goods  exclu- 
sively controlled  by  them,  and  as  a  natural  outcome,  give  a  certain 
proportion,  if  not  all  of  their  business  to  the  wholesale  grocers  connected 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  39 

with  the  Wholesale  Grocers*  Sales  Company.  Now  where  is  the  re- 
tailer to  be  materially  benefited  who  is  now  a  member  of  the  Frankford 
Grocers'  Association  or  the  Retail  Grocers'  Association  of  Philadelphia? 

Divided  effort  is  not  the  basic  principle  of  co-operation.  If  the 
various  organizations,  who  are  bidding  for  the  retail  grocers'  business, 
succeed  in  getting  a  proportion  of  it,  in  a  short  time  the  same  conditions 
will  prevail  that  existed  before  there  were  any  buying  organizations. 
This  is  easy  to  understand,  as  for  instance  every  dollar's  worth  of  busi- 
ness taken  from  the  Frankford  Grocery  Company  reduces  our  buying 
power,  therefore  as  the  Frankford  Grocery  Company,  the  Girard 
Grocery  Company,  The  Standard  Grocery  Company,  the  Richmond 
Grocery  Company  and  the  Community  Stores  Company,  etc.  have 
overhead  expense,  the  more  the  business  is  divided  up  the  more  the 
percentage  of  overhead  and  the  retail  grocer  pays  the  bill. 

Economy  and  efficiency  are  the  "Watch  Dogs"  which  protect  busi- 
ness, and  we  cannot  see  how  these  "Watch  Dogs"  can  be  utilized  for 
your  protection  if  you  divide  your  business  with  every  new  project 
that  comes  along  even  though  it  is  dressed  up  in  its  "Sunday  go-to- 
meeting"  and  is  pretty  to  look  at.  We  strongly  advise  the  retail 
grocers  to  study  the  question  very  thoroughly  before  they  divide  up 
their  business  under  supposedly  beneficial  co-operative  lines.^ 

A  month  later,  they  again  express  themselves  as  follows: 

It  has  been  a  question  as  to  whether  our  members  would  be  helped 
by  joining  the  Community  Stores  Co.  It  is  an  admitted  fact  by  all 
connected  with  the  grocery  business,  that  we  sell  our  members  cheaper 
than  service  jobbers  and  if  our  members  transfer  a  portion  of  their  busi- 
ness to  the  Community  Stores  jobber  and  pay  the  price  in  addition  to 
the  $10.00  membership  fee,  it  is  a  question  whether  or  not  the  adver- 
tising cost  will  not  be  out  of  all  proportion  to  the  advertising  value. 
We  believe  the  Community  Stores  Company  have  a  good  advertising 
plan,  but  here  is  the  question: 

If  a  grocer  uses  the  Community  Store  signs,  advertising  specials, 
etc.,  and  buys  from  the  Frankford  Grocery  Company — is  he  a  piker? 

or 

If  he  joins  the  Community  Stores  Company  and  uses  their  adver- 
tising specials,  etc.  isn't  he  in  duty  bound  to  give  the  Community  Stores 
Company  jobber  his  business?    To  our  mind  the  answer  is  obvious. 

What  is  your  answer? 
Show  us  a  consistent  middle  ground.^ 

In  the  same  issue  is  another  less  direct,  but  still  obvious, 
thrust  at  the  Community  Stores  Company,  in  an  article 
headed    "Is  100%  Co-operation  Worth  While." 

*  Grocers'  Review,  March  191 8,  p.  46.     "What  is  an  Association." 
'  Grocers'  Review,  April  1918,  p.  114.     "What  is  the  Answer." 


40  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

We  do  not  believe  that  any  co-operative  organization  is  founded  on 
real  co-operative  principles  unless  the  co-operators,  themselves  are  in  on 
the  ground  floor,  putting  up  the  finances  where  finances  are  needed, 
selecting  for  themselves  the  man  or  men  that  they  wish  for  their  execu- 
tives and  defining  for  these  executives  the  policy  by  which  the  organiza- 
tion shall  be  run.  .  .  .  The  question  before  your  association  that  is 
being  thoroughly  discussed  before  defining  our  policy  is  "Will  it  pay  the 
members  of  our  association  to  be  ioo%  association  members  or  will  it 
weaken  the  eff^ectiveness  of  our  association,  individually  and  collec- 
tively, for  our  members  to  join  other  so-called  co-operative  associations, 
which  are  known  to  have  interests  antagonistic  to  the  principles  for 
which  we  stand."  I  cannot  see  but  one  answer  to  this  question  and 
that  is,  "If  your  association  is  worth  belonging  to,  it  is  worth  your 
individual  loyalty."^ 

This  hostility  did  not  prevent  many  of  the  members  of  the 
Frankford  or  Philadelphia  associations  from  joining  the 
Community  Stores,  and  displaying  its  sign.  It  probably 
tended,  however,  to  dampen  their  interest  and  enthusiasm  in 
the  plan,  and  may  have  deterred  many  others  from  joining  it 
at  all. 

A  fourth  reason  assigned  by  the  officers  of  the  Wholesale 
Grocers'  Sales  Company  for  the  giving  up  of  the  plan  is  that 
many  of  the  wholesalers  and  also  a  good  number  of  retailers 
already  had  more  business  than  they  could  well  handle  under 
war  conditions.  Their  working  forces  were  depleted,  they 
had  to  pay  high  wages,  in  competition  with  war  industries, 
for  incompetent  labor,  and  so  they  were  not  particularly 
interested  in  a  scheme  which  meant  more  goods  for  them  to 
handle. 

To  a  neutral  observer,  this  reason  seems  somewhat  dubious. 
The  drafting  of  men  into  the  army  and  the  displacement  of 
labor  were  well  under  way  when  the  movement  was  launched 
in  the  early  months  of  191 8.  If  the  wholesale  grocers  were  so 
prosperous  at  the  end  of  191 8,  it  would  seem  that  they  must 
have  been  doing  a  fair  amount  of  business  at  the  beginning.  At 
the  beginning  of  the  year,  they  were  enthusiastically  pushing  a 
plan  for  increasing  their  businesses.  During  the  summer, 
they  were  proudly  telling  of  the  great  increase  in  the  sales  of 

Ibid.  p.  115. 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  41 

certain  products  brought  about  by  the  operation  of  the  plan. 
By  the  end  of  the  year,  they  were  explaining  that  they  were 
not  particularly  interested  in  the  plan  because  they  already 
had  more  business  than  they  could  handle.  It  does  not  seem 
likely  that  conditions  changed  as  rapidly  and  completely  as 
this  would  indicate.  Furthermore,  it  seems  that  if  the  plan 
had  been  operating  very  successfully,  the  wholesalers,  even  tho 
they  had  at  the  time  very  heavy  trade,  would  look  forv/ard  to 
the  time  when  they  might  not  be  so  prosperous,  and  would 
desire  to  keep  it  alive  to  help  them  at  such  a  time.  It  is,  to 
say  the  least,  unusual  for  business  men  to  fail  to  be  interested 
in  a  plan  because  it  means  an  increase  in  their  business. 

A  fifth  reason  given  by  one  of  the  officers  of  the  Community 
Stores  Company  is  the  failure  of  the  wholesalers  to  co-operate 
effectively.  Each  wholesaler  had,  of  course,  his  own  force  of 
salesmen.  These  salesmen  were  in  active  competition,  visited 
in  many  cases  the  same  retailers,  trying  to  sell  them  the 
same  goods.  There  was  no  attempt  to  district  the  city,  appar- 
ently, and  give  one  wholesaler  certain  exclusive  territory  in 
which  he  was  to  present  the  idea  to  the  retailers,  and  handle 
the  specials  for  them.  The  result  was  that  in  some  cases,  it 
was  found  retailers  would  stock  up  on  the  specially  priced 
articles  when  they  were  offered  by  the  wholesalers.  They 
would  buy  lots  of  the  special  from  two  or  more  wholesalers, 
and  then,  after  the  week  of  special  prices  as  advertised  was 
over,  sell  the  article  at  the  regular  price  for  some  time  to  come, 
putting  the  big  profit,  which  had  of  course,  come  out  of  the 
wholesalers*  pockets,  into  their  own.  There  appears  also  to 
have  been  difficulty  in  getting  the  various  members  to  agree  as 
to  what  should  be  offered  as  specials  at  times. 

Discussion  of  the  plan  with  the  officers  of  the  Girard  and 
Frankford  Companies,  and  some  of  the  retailers  who  were  in 
the  Community  Stores,  elicits  other  explanations  of  why  the 
idea  was  given  up.  Here  the  charge  is  frequently  heard  that, 
to  repay  themselves  for  the  losses  incurred  in  connection  with 
the  specials,  they  put  up  the  prices  on  other  goods.  This,  of 
course,  is  a  charge  to  which  the  price-cutter  always  lays  him- 


42  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

self  open,  and  one  very  difficult  to  prove  positively.  Whether 
or  not  the  wholesalers  as  a  group  did  this,  or  certain  among 
them,  if  the  retailers  had  a  general  impression  that  such  was 
the  policy  or  custom  of  the  wholesalers,  it  would  prejudice  them 
against  the  plan.  Such  an  impression  does  seem  to  have  been 
current  among  them,  and  it  seems  to  have  been  fostered  by 
the  associations. 

The  same  idea,  in  a  somewhat  different  form  is  expressed 
by  those  who  say  that  if  the  retailer  took  the  Community 
Stores  specials  and  advertised  brands,  he  was  expected  to 
give  to  the  wholesalers  a  large  share  of  his  other  trade,  at  terms 
not  so  advantageous  as  those  offered  by  the  Girard  or  Frank- 
ford.  This,  as  we  have  seen,  the  wholesalers  specifically  deny. 
Again,  whether  it  were  true  or  not,  if  any  large  number  of  the 
retailers  affiliated  with  the  two  associations  thought  that  it 
was  true,  it  would  react  to  the  injury  of  the  movement. 

Some  of  these  explanations  appear  to  be  perfectly  valid. 
Others,  as  has  been  noted,  seem  doubtful.  Those  which  are 
valid,  which  represent  factors  really  contributing  to  the  failure 
of  the  plan,  appear  to  rest  upon  certain  fundamental  weak- 
nesses in  the  scheme  as  it  was  operated.  Thus,  the  admitted 
difficulty  in  making  out  specials  which  would  be  universal 
in  their  appeal  suggests  a  more  general  and  basic  defect  in  the 
whole  plan — weakness  of  appeal  to  the  general  public.  The 
opposition  of  the  Frankford  and  Philadelphia  associations  of 
retailers,  again,  is  not  in  itself  a  sufficient  explanation  of  the 
lack  of  success.  Of  the  some  5300  grocery  stores  in  Philadel- 
phia not  connected  with  the  chain  systems,  only  22c o  belong 
to  the  two  associations.  This  leaves  the  wholesalers  a  free 
field  in  at  least  3000  cases.  Yet  the  Community  Stores 
Company  only  claims  a  membership  of  1600,  and  many  of 
these  were  members  of  the  associations.*  The  plan  was 
apparently  weak  in  its  appeal  both  to  the  association  members 
and  to  the  grocers  not  affiliated  with  the  associations.  The 
failure  of  the  wholesalers  themselves  to  co-operate  effectively 

•Newspaper  acxounts  claimed  for  the  Community  Stores  from  aioo  to  2500   members. 
The  above  is  the  number  given  the  writer  by  the  secretary. 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  43 

in  carrying  on  the  movement  brings  up  the  further  question, 
why  did  they  thus  fail.  In  short,  the  plan  was  weak  in  its 
appeal  to  all  three  factors  essential  to  its  success — the  con- 
suming public,  the  retailers,  and  the  wholesalers. 

Its  appeal  to  the  public  rested  upon  three  main  methods. 
It  sought  to  draw  them  to  Community  Stores  by  offering 
temporary  bargains  in  certain  standard  goods;  it  sought  to 
force  the  public  to  patronize  Community  Stores  as  the  only 
places  where  certain  widely  advertised  but  unfamiliar  goods 
could  be  purchased;  and  it  tried  to  establish  in  the  mmds  of  the 
public  that  the  Community  Store  sign  stood  for  certain  stand- 
ards of  quality  and  service. 

The  first  of  these,  as  we  have  seen,  met  the  difficulty  that  the 
tastes  of  different  sections  of  the  population  are  so  diverse. 
It  had  other  weaknesses.  A  price-cutting  policy  may  be 
successful  if  it  is  carried  on  continuously,  and  applied  to  a  large 
number  of  articles.  But  simply  to  have  special  prices  on  one 
or  two  articles  each  week  is  not  a  very  strong  drawing  card, 
particularly  when  it  comes  into  competition  with  stores  which 
have  built  up  a  reputation  for  low  prices  on  all  lines,  and  which 
are  constantly  advertising  large  numbers  of  bargains.  This 
was  just  the  situation  which  the  Community  Stores  plan  was 
facing  in  the  chain  store  competition.  The  one  great  appeal 
of  the  chain  stores  is  low  prices.  They  have  the  reputation  of 
being  much  lower  in  their  prices  on  all  lines  than  the  independ- 
ent grocers,  and  of  offering  numerous  cut-price  goods.  In  the 
face  of  this,  occasional  bargains  at  other  stores  were  not  a 
great  inducement  to  trade  there  permanently.  Had  the 
Community  Stores  been  able  to  offer  reductions  on  a  number  of 
goods  for  a  considerable  time,  they  would  have  stood  a  better 
chance  of  making  an  effective  appeal  to  the  public  on  the 
ground  of  prices. 

In  regard  to  the  advertised  specialties,  which  were  controlled 
by  the  Community  Stores,  the  wholesalers,  in  their  publicity 
campaign  alleged  that  they  were  selling  them  at  lower  prices 
because  of  the  savings  which  they  were  making  in  handling 
and  purchasing  them  in  large  quantities.     The  public  had  no 


44  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

means  of  testing  this  claim,  since  the  articles  were  on  sale  only 
at  the  Community  Stores.  Here  again,  on  this  second  point, 
the  appeal  to  the  public  was  not  very  strong.  The  selling  of 
new  and  unknown  articles,  even  tho  they  are  introduced  by  a 
vigorous  advertising  campaign,  is  not  a  very  effective  way  of 
drawing  custom  to  a  store.  Of  course,  it  has  probably  at- 
tracted a  certain  number,  but  the  experience  of  the  retailers  in 
general  seems  to  be  that  it  did  not  promote  trade  to  any 
appreciable  degree. 

The  attempt  to  establish  a  connection  in  the  minds  of 
purchasers  between  the  Community  Stores  sign,  and  the 
quality  and  service  of  the  stores  displaying  it  was  not  more 
promising.  There  were,  as  we  have  seen,  1600  stores  displaying 
that  sign.  Certainly,  there  must  have  been  wide  differences 
in  the  standards  of  these  stores  as  to  quality  or  service.  The 
wholesalers  had  no  way  of  compelling  these  stores  to  maintain 
any  uniform  standards.  If  they  had  made  the  attempt,  it 
might  have  met  with  the  difficulty  which  the  specials  met, 
the  divergent  tastes  of  the  different  sections  of  the  city.  They 
might,  and  occasionally  did,  give  suggestions  for  the  improve- 
ment of  stores,  but  they  had  no  real  control  over  the  stores, 
and  do  not  appear  to  have  tried  seriously  to  exercise  any.  The 
individual  proprietors  continued  to  carry  on  business  as  they 
had  been  accustomed  to,  with  their  own  methods.  So  that 
practically  the  sign  was  no  real  guarantee  of  quality  or  service. 
Some  of  the  best  and  cleanest  and  most  sanitar-y  stores  in  the 
city  and  suburbs  bore  the  Community  sign  in  the  window.  So 
also  did  some  which  even  the  casual  visitor  could  see  fell  far 
short  in  cleanHness  and  neatness.  If  some  of  the  Community 
Stores  gave  very  complete  service,  so  did  many  stores  not  allied 
with  the  plan.  If  some  of  the  stores  with  best  reputations  for 
quality  of  goods  handled  were  in  the  movement,  many  with 
just  as  good  reputations  were  not.  Thus  no  one  of  the  three 
bases  of  the  appeal  to  the  public  was  strongly  effective. 

Its  appeal  to  the  retailers  rested  upon  two  foundations,  a 
promise  of  increased, trade,  and  the  offer  of  lower  prices  on 
certain  goods.     The  former  rested  in  turn  upon  the  efficacy 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  45 

of  the  appeal  to  the  public.  If  this  failed,  the  interest  of  the 
retailer  would  not  be  held  very  long.  To  get  an  absolutely 
fair  and  accurate  estimate  of  the  serviceableness  of  the  move- 
ment to  the  retailers,  it  would  be  necessary  to  interview  a 
large  proportion,  if  not  all,  of  the  1600  members  of  the  Commu- 
nity Stores.  The  writer  has  not  done  this.  He  has  inter- 
viewed a  limited  number  of  them,  in  scattered  parts  of  the  city. 
The  unanimous  opinion  of  those  whom  he  has  asked  about 
the  Community  Stores  plan  is  that  they  could  not  see  that 
they  reaped  any  benefit  from  it.  Those  in  well-to-do  districts, 
or  serving  well-to-do  trade,  say  that  the  specially  priced 
goods  made  little  if  any  appeal  to  their  customers.  Grocers  of 
this  type  do  not  seem  to  be  worried  about  chain  store  competi- 
tion. They  say  that  their  customers  want  quality  in  their 
goods,  and  service.  The  people  who  are  interested  in  bargains 
go  to  the  chain  stores.  To  grocers  serving  trade  like  this,  cut- 
price  specials  are  not  of  much  assistance  in  drawing  trade. 

Grocers  serving  less  well-to-do  trade,  who  in  some  cases 
confess  to  feeling  the  chain  stores  competition,  agree  in  their 
verdict  with  the  above  statements.  They  say  that  the  specials 
in  many  cases  did  not  make  any  appeal.  One,  in  commenting 
on  the  charge  that  some  of  the  retailers  stocked  up  on  the 
specials  when  the  wholesalers  were  giving  the  low  prices,  and 
later  sold  them  at  regular  prices,  said  that  this  practice  was 
the  result  of  the  fact  that  many  grocers  took  large  quantities 
of  the  specials  at  first,  expecting  to  have  a  big  demand  for 
them  during  the  week  of  the  sale,  but  had  most  of  them  left 
on  their  hands.  Of  course,  they  sold  this  at  the  regular  price. 
Occasionally,  there  would  be  a  big  demand  for  one  of  the 
specials,  but  it  did  not  bring  permanent  increase  in  trade. 
Some  seemed  to  feel  that  they  actually  lost  thru  handling  the 
cut-price  goods  as  they  were  not  even  making  their  expenses. 
As  to  the  advertised  new  articles,  there  was  a  difference  of 
opinion.  Some  retailers  report  a  very  brisk  trade  in  some  of 
them.     Others  say  they  have  little  call  for  them. 

In  offering  low  prices  on  certain  goods,  the  wholesalers  were 
attempting  to  compete  with  the  two  association  companies, 


46  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

which  have  very  generally  the  reputation  of  giving  lower 
prices  than  the  regular  jobbers.  Again  it  was  a  case  where 
low  prices  on  a  few  articles  came  into  contact  with  a  policy 
of  universal  low  prices.  Of  course,  the  retailer  believed  that 
it  was  to  his  advantage  to  patronize  the  association,  where  he 
believed  prices  were  generally  low,  than  to  go  to  the  whole- 
salers for  a  few  special  rates.  As  we  have  seen,  many  did  both. 
Coupled  with  this,  was  the  fact,  already  mentioned,  that  many 
retailers  believed  that  the  wholesalers  put  up  their  prices  on 
other  lines  to  make  up  for  their  losses  on  the  specials.  Thus, 
on  these  two  fundamental  grounds,  the  appeal  of  the  plan  to 
the  retailers  was  weak. 

The  opposition  of  the  Girard  and  Frankford  and  the  sus- 
picions engendered  by  them  would  of  course  not  counteract  in 
any  way  this  weakness. 

Mention  has  been  made  of  plans  to  give  the  retailers  assis- 
tance such  as  a  collection  agency,  advice  on  store  management 
and  system,  and  so  forth.  Apparently,  these  were  not  devel- 
oped. During  the  first  few  weeks,  according  to  the  statement 
of  one  of  the  officers,  a  booklet  was  published  and  sent  to  the 
retailer  members  of  the  Community  Stores.  This  however 
was  soon  discontinued.  The  retailers  interviewed  agreed  in 
stating  that  there  was  no  attempt  to  do  anything  of  the  sort  in 
their  cases.  They  received  no  advice,  no  offers  of  service  of 
any  kind,  from  the  Community  Stores.  On  the  other  hand, 
the  officers  of  the  company  state  that  it  was  part  of  the  policy 
of  the  plan  to  give  the  retailers^advice,  and  that  they  frequently 
did  such  things  as  fixing  up  window  displays  of  the  specials, 
getting  men  to  clean  up  their  stores,  arrange  them  more 
attractively,  etc.  The  agency  thru  which  these  activities  were 
supposed  to  be  carried  on  was  simply  the  salesmen  of  the 
wholesalers,  so  it  is  quite  possible  that  the  retailers  received 
what  the  wholesalers  regarded  as  Community  Store  Service 
without  knowing  they  were  receiving  it.  Practically  it  seems 
that  all  the  service  meant  was  a  somewhat  more  critical 
interest  in  the  retailer's  store  and  methods  on  the  part  of  the 
wholesale  salesmen. 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  47 

Another  weakness  in  the  plan,  from  the  standpoint  of  the 
retailers,  was  that  they  had  no  share  in  the  management  or  the 
formation  of  the  policy  of  the  company.  It  was  controlled 
absolutely  by  the  wholesale  members.  On  the  other  hand  the 
Girard  and  Frankford  are  the  retailers'  own  companies.  They 
put  in  the  capital  and  own  the  stock.  They  elect  the  officers, 
determine  the  policy  which  those  officers  are  to  carry  out  at 
their  weekly  meetings,  and  they  receive  the  dividends.  It  is 
only  natural  that  they  should  have  much  more  interest  in  an 
organization  of  this  latter  type  than  in  one  which  was  designed, 
founded,  and  operated,  professedly  for  their  benefit,  it  is  true, 
but  nevertheless  solely  and  exclusively  by  the  wholesalers. 
That  the  latter  recognized  that  this  was  a  weakness  is  evidenced 
by  the  fact  that  toward  the  close  of  the  experiment,  they  were 
considering  a  plan  for  giving  the  retailers  representation  on  the 
board  of  directors  of  the  Community  Stores  Company.  This 
plan  was  to  divide  the  territory  up  into  districts,  and  have 
the  retail  members  in  each  district  elect  a  member  of  the  board. 
Probably  six  districts  might  have  been  made,  giving  the  re- 
tailers the  same  number  of  representatives  that  the  wholesalers 
had,  excluding  the  officers,  who  were  members  of  the  board. 
Thus,  the  majority  would  still  have  been  wholesalers,  and  they 
would  have  remained  in  control  of  the  movement.  The 
retail  members  might  have  been  little  more  than  advisory 
members  under  this  arrangement.  It  would  have  brought 
the  movement  in  closer  touch  with  the  retailers,  and  would 
probably  have  been  of  much  assistance  to  them  in  making 
up  the  specials.  The  retailers  from  the  various  districts 
would  have  been  more  intimate  with  the  idiosyncrasies  of 
public  taste  in  their  respective  districts  than  the  wholesalers 
or  their  salesmen  could  be  expected  to  be. 

The  appeal  of  the  plan  to  the  wholesalers  also  had  two 
phases.  There  was  apparently  the  hope  for  increased  trade, 
possibly  at  the  expense  of  the  Girard  and  Frankford  and  the 
chain  stores.  Then  there  was  the  desire  for  better  and  closer 
relations  with  the  retailers,  to  wean  them  in  some  degree  from 
their  allegiance  to  their  own  companies,  not  only  in  matters 


48  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

of  the  purchasing  of  goods,  but  also  in  their  good-will.  The 
ability  of  the  plan  to  accomplish  these  two  things  rested  upon 
its  abihty  to  command  the  patronage  of  the  public,  and  the 
support  of  the  retailers.  When  it  failed  to  accomplish  this, 
it  failed  to  appeal  longer  to  the  wholesalers. 

We  have  already  seen  the  other  disadvantages  which  it  had, 
from  the  standpoint  of  the  wholesalers — the  fact  that  they 
actually  lost  money  on  many  of  the  specials;  the  fact  that, 
even  when  they  did  not  actually  resell  at  a  net  loss,  they  were 
handling  large  quantities  of  goods  without  making  their  over- 
head expenses,  at  a  time  when  labor  was  dear  and  expenses 
high;  that  they  had  great  difficulty  in  making  up  attractive 
specials;  that  they  did  not  co-operate  effectively;  and  that  the 
plan  developed  at  a  time  when  they,  according  to  their  state- 
ments, were  not  feeling  the  pressure  of  competition  upon  the 
volume  of  their  businesses  especially  keenly.  Had  the  plan, 
in  return  for  these  disadvantages  and  costs,  actually  brought 
about  a  large  growth  in  profitable  trade,  they  would  no  doubt 
have  considered  it  well  worth  while.  The  evidence  points  to 
the  conclusion  that  it  did  not  result  in  such  an  increase,  and 
this  conclusion  is  corroborated  by  the  fact  that  it  was  dis- 
continued. 

The  wholesalers,  as  we  have  seen,  refuse  to  admit  that  the 
plan  was  a  complete  failure.  They  maintain  that  it  to  some 
degree  at  least  accomplished  one  of  its  objects,  that  of  increas- 
ing the  good-will  of  the  retailers  toward  the  wholesalers. 
While  they  admit  that  many  of  the  retailers  took  little  interest 
in  the  plan  and  did  not  co-operate  in  trying  to  push  the  sales 
of  the  specially  advertised  articles,  they  state  that  there  were 
thruout  the  city  a  large  number  of  retailers,  particularly  the 
more  enterprising  and  energetic  ones,  who  co-operated  very 
enthusiastically,  pushed  the  specially  advertised  goods,  made 
good  use  of  the  cut-price  specials,  and  increased  their  business 
very  materially  thru  the  plan.  It  is  claimed  that  in  one 
instance,  a  grocer  doubled  his  business  as  a  result  of  it.  The 
wholesalers  further  state  that  they  believe  that,  as  a  result  of 
the  movement,  the  retailers  have  a  more  cordial  feeling  toward 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  49 

the  wholesalers.  They  realize  that  the  wholesalers  are  interested 
in  their  welfare  and  wish  to  help  them.  The  writer's  inter- 
views with  retailers  do  not  furnish  much  evidence  of  this,  but 
it  must  be  remembered  that  they  brought  him  into  contact 
with  an  extremely  small  number  of  the  retailers  of  the  city. 

The  wholesalers  argue  that  the  plan  would  have  succeeded 
in  normal  times,  or  in  a  city  where  there  were  fewer  wholesalers, 
and  the  task  of  getting  complete  co-ordination  of  their  efforts 
was  therefore  not  so  difficult. 

Altho  the  Community  Stores  as  a  brand  and  as  an  adver- 
tising trade  mark  is  no  longer  used,  the  activities  of  the  whole- 
salers are  still  being  continued  along  the  same  two  lines 
described,  tho  on  a  more  limited  and  less  systematic  plan.  The 
wholesalers  connected  with  the  Wholesale  Grocers*  Sales 
Company  still  hold  their  weekly  meetings.  They  still  control 
the  Philadelphia  market  for  certain  specialties.  There  has, 
according  to  one  of  the  officers  of  the  Sales  Company,  been  some 
attempt  to  give  cut-price  specials  for  various  districts.  In  this 
way,  they  are  trying  to  overcome  the  difficulty  of  the  varying 
tastes  of  different  parts  of  the  city.  The  pushing  of  these 
specials  is,  however,  left  to  the  individual  grocers. 

One  of  the  best  ways  of  measuring  the  effectiveness  of  the 
Community  Stores  plan  is  unavailable.  This  is  an  investiga- 
tion of  the  actual  amounts  of  the  goods  advertised  under  it 
which  were  handled  by  the  wholesalers.  No  accounting  was 
kept  by  the  Sales  Company,  or  by  the  twenty-four  wholesalers 
of  the  goods  handled  by  them  under  the  Community  Store 
arrangements  as  separate  from  all  goods  which  they  were 
handling  at  the  time.  It  is  apparently  impossible,  in  any  case, 
for  a  wholesaler  to  tell  exactly  how  many  dollars  worth  of 
goods  he  sold  to  retailers  under  the  plan.  Probably  they 
could  get  a  fair  idea  by  going  thru  their  sales  records,  but 
those  interviewed  profess  never  to  have  done  this. 

It  will  be  noticed  that  the  Community  Stores  plan  was  a 
selling  plan,  and  that  it  took  advantage,  in  its  appeal  to  the 
manufacturers,  of  the  fact  that  the  Girard  and  Frankford  have 
no  regular  salesmen.     This  fact  enables  the  two  co-operative 


50  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

companies  to  make  considerable  saving  in  their  overhead 
expenses,  but  it  also  represents  a  weakness,  particularly  from 
the  standpoint  of  a  manufacturer  introducing  his  products 
into  the  Philadelphia  field.  It  will  be  remembered  that  the 
sixth  function  of  the  wholesaler,  in  the  analysis  in  the  first 
section,  was  to  serve  the  manufacturer  by  promoting  the  sales 
of  his  goods,  and  introducing  new  articles  to  the  trade,  and 
thus  to  the  public.  There  are  various  possible  alternatives 
to  this  method.  The  manufacturer  may  introduce  his  goods 
thru  his  own  salesmen,  or  he  may  introduce  and  push  them 
thru  a  strong  campaign  of  advertising,  or  he  may  adopt  some 
method  of  rewarding  retailers  who  are  particularly  active  in 
selling  his  goods,  by  prizes,  premiums,  or  other  device.  No 
matter  which  one  of  these  methods  he  takes,  the  cost  of  the 
selling  campaign  will  form  part  of  the  cost  of  bringing  the 
article  to  the  consumer.  Thus,  the  chief  concern  to  the 
manufacturer,  will  be  to  determine  which  method  is  the  most 
effective;  that  is  which  secures  the  largest  volume  of  sales 
with  the  greatest  net  profit  to  himself.  If  a  number  of  manu- 
facturers are  convinced  that  some  of  the  newer  alternative 
methods  are  more  effective  than  the  old  one  of  passing  on 
their  products  to  wholesalers,  the  latter  will,  to  that  extent, 
be  eliminated  from  the  marketing  system.  It  will  be  a  case  of 
survival  of  the  most  efficient. 


CHAPTER  IV 

SELLING  PLANS  OF  THE  CO-OPERATIVE 
ASSOCIATIONS 

It  is  interesting  to  note  that  in  connection  with  the  Girard 
and  Frankford  Grocery  Companies,  with  their  lack  of  sales- 
men, a  number  of  substitute  selling  plans  have  been  adopted. 
The  special  salesmen  of  the  two  co-operative  firms  have  been 
mentioned.  The  Retail  Merchants'  Association  of  Pennsyl- 
vania, with  which  both  the  Philadelphia  Retail  Grocers' 
Association  and  the  Frankford  Grocers*  Association  are  affili- 
ated, has  put  into  operation  the  so-called  "Pennsylvania 
Plan."  This  is  really  in  the  nature  of  a  private  enterprise, 
organized  and  carried  on  largely  thru  the  efforts  of  a  firm  known 
as  the  C.  M.  Wessels  Company.  Thru  the  efforts  of  this 
company,  the  manufacturers  of  certain  products,  and  the 
retail  grocers'  associations  thruout  the  state  have  been  brought 
into  the  plan.  A  manufacturer,  upon  joining  the  "Plan," 
pays  a  certain  sum  of  money  to  the  Wessels  Company.  This 
money  received  from  the  manufacturers  is  used  for  the  pro- 
motion and  assistance  of  the  various  organizations  of  retail 
merchants  thruout  the  state,  aUied  with  the  Retail  Merchants' 
Association  of  Pennsylvania.  The  salary  and  expenses  of  the 
state  secretary  are  paid  from  these  funds,  enabling  him  to 
travel  extensively  thru  the  state,  organizing  the  local  associa- 
tions, and  at  times  giving  them  assistance  in  campaigns  for 
membership.  A  contribution  to  the  traveling  expenses  of 
delegations  to  the  state  convention  is  made.  In  addition,  the 
manufacturers  associated  with  the  plan  seem  to  make  spe- 
cial donations,  at  times,  to  the  state  association  for  specified 
purposes. 

In  return,  the  grocers  who  are  members  of  the  local  associa- 
tions affiliated  with  the  state  association  are  expected  to  make 
every  possible  effort  to  sell  the  products  of  the  manufacturers 


52  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

supporting  the  plan,  to  the  exclusion  of  competing  lines.  They 
are  instructed  to  display  the  goods  prominently  in  their  stores, 
to  ask  customers  to  try  the  goods,  to  sell  that  particular  article 
whenever  a  customer  asks  for  a  product  without  specifying  the 
particular  brand.  Thus,  while  the  Hershey  Chocolate  Com- 
pany is  a  contributor  to  the  plan,  every  retail  grocer  in  the 
state  association  is  expected  to  make  particularly  strong 
efforts  to  sell  that  company's  cocoas  and  chocolates  to  the 
exclusion  of  other  brands.  If  a  customer  asks  for  "Cocoa," 
she  will  be  given  Hershey's.  If  she  comes  to  the  store  to  buy 
other  goods,  it  will  be  suggested  that  she  try  Hershey's  Cocoa. 
If  she  asks  for  some  other  brand,  she  may  be  asked  if  she  has 
ever  tried  Hershey's.  In  the  discussions  of  the  plan  at  con- 
ventions and  elsewhere,  it  is  stated  that  if  the  retail  grocer 
makes  such  special  efforts  to  sell  an  article,  he  can  frequently 
sell  it  to  one  out  of  every  three  persons  who  come  into  his 
store.  To  encourage  the  retailers  to  make  these  special 
efforts,  prizes  amounting  to  $2500  are  given  annually,  at  the 
state  convention,  to  the  local  associations  having  made  the 
largest  amounts  of  sales  of  the  products  in  the  plan  in  the 
preceding  year,  in  proportion  to  the  membership.  This  money 
is  contributed  by  the  Wessels  Company  from  the  funds  paid  to 
it  by  the  manufacturers.  The  local  association  with  the 
largest  record  of  sales  by  its  members,  in  proportion  to  their 
number,  receives  the  first  prize  of  three  hundred  dollars.  The 
second  prize  is  two  hundred,  and  there  are  some  eighteen  or 
twenty  lower  prizes  of  one  hundred  dollars  and  fifty  dollars 
each,  so  that  the  "Pennsylvania  Plan  money,"  as  it  is  popularly 
referred  to  at  the  conventions,  is  fairly  widely  distributed 
among  the  associations. 

This  plan  of  course  simply  means  that  certain  manufacturers 
secure  an  advantage  over  their  competitors  by  patronizing  the 
local  and  state  associations  of  retailers.  Instead  of  giving 
discounts  to  the  wholesalers  who  are  members  of  the  Whole- 
sale Grocers'  Sales  Company,  or  following  some  other  plan  of 
access  to  the  Philadelphia  market,  they  are  spending  part  of 
their    advertising    and    selling    appropriations    to    assist    the 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  ^^ 

retailers,  expecting  in  return  the  retailers  to  give  them  special 
service  and  favors.  It  is  a  substitute  for  the  activity  of  the 
wholesaler  in  pushing  goods. 

There  are  usually  eight  or  nine  firms  associated  with  the 
Pennsylvania  Plan.  They  vary  considerably  from  year  to  year. 
At  the  present  time  (August,  191 9)  the  manufacturing  members 
are  Joseph  Tetley  Co.,  Inc.,  Rumford  Baking  Powder,  Her- 
shey  Chocolate  Company,  Diamond  Match  Company,  Dia- 
mond Crystal  Salt  Company,  Fels  &  Company,  Pillsbury 
Flour  Mills  Company,  Franklin  Sugar  Refining  Company. 
Some  of  the  firms  which  were  in  the  Plan  at  one  time,  but 
dropped  out,  are  Wm.  Wrigley,  Jr.  &  Co.,  the  Corn  Products 
Refining  Company  (makers  of  Karo),  the  National  Starch 
Company  (Kingsford's  Corn  Starch),  Borden's  Condensed 
Milk  Company,  Loose-Wiles  Biscuit  Company,  H.  O.  Wilbur 
&  Sons,  Inc.,  Pacific  Coast  Borax  Company,  Thomas  J.  Lipton, 
Inc.,  and  the  Frankhn  Baker  Company  (grated  cocoanut). 
The  natural  inference  is  that  these  manufacturers  did  not  feel 
that  the  results  of  their  membership  were  sufficiently  profit- 
able to  justify  their  continuance  in  it.  On  the  other  hand,  a 
number  of  firms  have  continued  in  it  for  two  or  three  years, 
among  them  the  Franklin  Sugar  Refining  Company,  the  Dia- 
mond Match  Company,  and  Fels  and  Company.  At  the  con- 
vention in  August,  1 917,  the  representative  of  H.  O.  Wilbur 
&  Sons  stated,  "Usually  movements  of  this  kind  do  not  interest 
the  local  people  sufficiently  to  justify  the  manufacturer  in 
supporting  them.  This  plan  has  not  been  profitable  to  us;  we 
could  not  figure  any  returns  that  would  justify  the  continuance 
of  it,  but  we  hope  it  will  ultimately  prove  profitable."^  Appar- 
ently these  hopes  were  not  fulfilled,  for  the  firm  is  no  longer 
listed  as  a  member  of  the  plan.  At  the  same  time,  the  repre- 
sentatives of  other  companies  gave  more  favorable  reports. 
Mr.  Johnson  of  the  Franklin  Baker  Company,  selling  Baker's 
Grated  Cocoanut,  stated,  "We  have  increased  our  sales 
double  in  six  months  this  year  over  all  of  last  year  in  the  state 
of  Pennsylvania. "2    The   representative  of  the  Loose-Wiles 

^  Grocers'  Review,  September  191 7,  p.  504. 
^  Ibid.  p.  506. 


54  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

Biscuit  Company  said  that  his  company  had  had  an  increase 
in  their  sales  in  Pennsylvania  of  255  per  cent  over  any  previous 
year,  and  "we  feel  that  the  Pennsylvania  Plan  has  helped  to 
attain  this  result/'^  Yet  both  of  these  firms  have  since  with- 
drawn from  the  plan.  Mr.  Wessels  himself,  the  promoter  of 
the  plan,  said,  "A  few  manufacturers  are  dissatisfied,  but  they 
themselves  are  largely  at  fault."^ 

It  will  be  noticed  that  the  plan  offers  no  direct  reward  to 
the  individual  retailer  for  increasing  his  sales  of  the  products, 
except  the  resulting  increase  in  his  own  profits.  Yet  in  many 
cases  it  is  doubtful  whether  his  profit  is  any  more  if  he  sells, 
say,  a  sugar  or  cocoa  which  is  in  the  plan  than  one  which  is 
not.  The  inducement  offered  to  the  retailer  is  the  possibility 
of  his  local  association  receiving  a  prize,  and  the  support  which 
is  given  to  the  state  and  local  associations.  To  a  neutral 
observer,  it  seems  as  if,  in  the  case  of  many  retailers,  this 
inducement  to  special  effort  would  be  rather  weak.  For  a 
grocer  enthusiastically  interested  in  the  local  association,  and 
keenly  alive  to  its  advantages,  it  would  be  a  real  incentive. 
But  to  those  who  take  little  or  no  interest  in  the  associations, 
and  do  not  realize  their  benefits,  it  would  amount  to  but  little. 

A  plan  somewhat  similar  to  the  Pennsylvania  Plan,  worked 
out  locally  by  the  Retail  Grocers*  Association  of  Philadelphia, 
in  co-operation  with  the  Philadelphia  "Inquirer,"  a  daily 
newspaper,  and  certain  manufacturers,  is  the  so-called  "Trian- 
gle Plan."  Each  week,  the  "Inquirer"  devotes  a  page  to  the 
advertisements  of  special  goods,  handled  by  the  Girard  Gro- 
cery Company,  being  paid  for  the  advertisements  by  the 
manufacturers  of  the  respective  products.  On  this  page,  the 
triangular  initial  emblem  of  the  association  is  prominently 
reproduced,  with  the  slogan  "Deal  at  Triangle  Stores."  To 
encourage  the  members  to  make  special  efforts  to  sell  the  goods 
advertised,  several  methods  have  been  tried.  These  have  all 
depended  in  some  form  upon  the  payment  of  prize  money 
donated  for  the  purpose  by  the  "Inquirer."     For  some  time, 

'  Ibid.  p.  507. 
*  Ibid.  p.  504. 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  ^^ 

this  money,  to  the  amount  of  five  hundred  dollars  a  month, 
was  distributed  in  the  form  of  dividends  on  so-called  "Triangle 
points."  These  points  were  awarded  by  the  Girard  Grocery 
Company  for  three  things:  the  purchases  from  them  of  goods 
advertised  on  the  'Triangle  page";  window  displays  of  these 
goods;  and  regularity  in  attendance  at  the  meetings  of  the 
association.  For  instance,  under  one  scale  adopted,  window 
displays  were  judged  upon  their  effectiveness,  with  two  thou- 
sand points  as  the  maximum  award  for  such  displays;  coupons 
for  fifty  points  were  given  to  the  retailers  with  the  purchase  of 
each  dollar's  worth  of  merchandise  advertised  on  the  "Triangle 
page";  twenty-five  points  were  awarded  for  each  meeting 
attended,  and  an  additional  twenty-five  points  were  given  for 
attendance  at  every  meeting  during  a  month. ^  The  dividends 
varied  according  to  the  number  of  grocers  who  scored  and  the 
total  scores  made.  Since  there  was  only  a  definite  sum  of 
money  available  each  month,  the  larger  the  scores  made,  the 
smaller  were  the  dividends  paid  on  the  points.  Those  paid 
for  a  few  months  will  give  some  idea  of  their  worth,  and 
fluctuations.  In  November,  191 6,  a  dollar  per  thousand  points 
was  paid  on  them;^  in  February,  1917,  eighty-five  cents  per 
thousand;^  in  May,  sixty-five  cents  per  thousand;^  in  June, 
a  dollar  per  thousand.^  In  November,  191 7,  the  plan  was 
changed.  Instead  of  paying  cash  dividends  to  all  who  made 
points,  it  was  announced  that  gold  watches  would  be  awarded 
to  the  members  securing  the  highest  number  of  points.  Two 
were  to  be  given  away  each  week  at  the  meeting  of  the  asso- 
ciations.^" Later,  it  was  announced  that  the  accumulation 
of  30,000  points  would  entitle  a  member  to  a  gold  watch.^^ 
In  January,  191 8,  the  Grocers'  Review  states,  "Our  Tnquirer' 
Triangle  plan  now  carries  awards  for  watches  earned  only 
through  window  displays. "^^     Shortly  after  this,  the  plan  was 

^  Grocers*  Review,  November  191 7,  p.  630. 

^  Ibid.  January  191 7,  p.  769. 

^  Ibid.  April  1917,  p.  90. 

'  Ibid.  July  1917,  p.  282. 

'  Ibid.  August  1 91 7,  p.  345. 

^°  Ibid.  November  191 7,  p.  630. 

^^  Ibid.  December  191 7,  p.  678. 

*'  Ibid.  January  191 8,  p.  760. 


56  Competition  and  Combina  tion  in  the  Wholesale  Grocery  Trade 

suspended  for  the  duration  of  the  war.  Since  the  close  of  the 
war,  it  has  been  revived,  and  is  now  being  conducted  under  a 
plan  similar  to  that  first  described  above.  Cash  dividends  are 
paid  on  ^'Triangle  points,"  and  these  are  paid  now  only  for 
purchases  of  advertised  goods  from  the  Girard  Company. 

The  similarity  of  this,  not  only  to  the  Pennsylvania  Plan, 
but  also  to  the  Community  Stores,  will  immediately  be  noticed. 
In  fact,  since  this  was  in  existence  before  the  latter,  it  seems 
quite  possible  that  it  may  have  suggested  the  advertising  idea 
of  the  Community  Stores  to  the  wholesalers.  There  was  the 
same  attempt  to  carry  on  a  general  advertising  campaign  of 
certain  products,  and  link  it  up  with  stores  displaying  a 
certain  brand,  where  it  could  be  purchased.  In  the  Com- 
munity Stores  plan,  the  inducement  to  the  retailer  to  push 
the  sales  of  the  advertised  goods  aside  from  the  profits  to  be 
made  in  handling  them,  was  simply  his  general  interest  in  the 
movement.  This,  as  we  have  seen,  was  not  likely  to  be  very 
great.  In  the  Triangle  plan,  the  incentive  is  supplied  more 
directly,  thru  the  payment  of  actual  cash  bonuses  on  the  sales 
made,  or  the  hope  of  securing  a  prize  of  some  sort.  In  the 
Pennsylvania  Plan,  the  incentive  is  the  rewards  to  the  local  and 
state  associations.  Of  the  three,  that  of  the  Triangle  plan 
seems  to  be  the  most  direct  in  its  appeal  to  the  retailer.  Yet 
even  it  does  not  appear  to  be  a  complete  success.  We  find 
the  association  constantly  urging  its  members  to  support  the 
manufacturers  who  are  advertising  on  the  Triangle  page,  and 
urging  them  to  redeem  the  coupons  given  with  their  purchases 
of  these  goods.  A  typical  appeal,  which  is  frequently  sub- 
stantially repeated,  may  be  quoted:  "Don't  overlook  those 
coupons  attached  to  invoices.  They  are  money  in  your 
pocket. "^3  Apparently,  some  grocers  regarded  the  dividends 
^as  so  small  as  not  to  be  worth  claiming.  Again,  they  are  told, 
"We  believe  that  all  our  members  should  give  loyal  support 
to  the  advertisers  in  our  Triangle  page,  because  these  concerns 
have  continued  to  support  us  and  stand  by  us  in  many  cases, 
for  the  last  four  years."^^ 

^^Ibid.  January  1917,  p.  769. 
^*Ibid.  June  1917,  p.  230. 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  57 

The  Triangle  plan  appears  to  have  exactly  the  same  objects 
from  the  standpoint  of  the  association,  as  the  Community 
Stores  had  from  that  of  the  wholesaler.  It  is  designed  to 
build  up  in  the  mind  of  the  consuming  public  a  good-will  for 
the  association  and  a  reputation  for  its  trademark;  to  attract 
customers  to  the  stores  of  the  members;  to  increase  the  volume 
of  sales  passing  thru  the  association;  and  to  secure  for  the 
association  the  support  of  the  manufacturers. 

Unlike  the  Community  Stores  plan,  the  Triangle  plan  does 
not  have  any  cut-price  feature.  Neither  does  it  secure  for 
the  Girard  Grocery  Company  the  sole  agency  in  the  city  for  the 
products  advertised.  Nor  does  it  apply  so  strictly  to  new  or 
little  known  articles  as  did  the  Community  Store  plan.  Among 
the  manufacturers  who  have  advertised  in  this  Triangle  plan 
are  J.  S.  Ivins  Sons  (local  manufacturers  of  cakes  and  biscuits), 
Hecker,  Jones,  Jewell  Milling  Company,  Franklin  Sugar 
Refining  Company,  Chalmers  Gelatine  Corporation,  Armour 
&  Company,  Ryson  Baking  Powder  Company,  Joseph  Tetley 
Company,  Inc.,  Freihofer  Bakery,  Libby,  McNeil,  &  Libby, 
and  the'  Buffalo  Specialty  Company. 

Another  plan  based  upon  exactly  the  same  idea  of  making 
it  to  the  interest  of  the  retail  grocer  to  sell  certain  brands  of 
goods  to  the  exclusion  of  competing  ones,  is  the"  Co-operators." 
This,  like  the  Pennsylvania  Plan  is  a  private  enterprise  of  the 
C.  M.  Wessels  Company.  It  is  developed  along  the  same  line, 
but  in  a  more  limited  way.  In  it,  Mr.  Wessels  has  brought 
together  about  eighty-five  of  the  retail  grocery  stores  of  the 
city,  and  various  co-operating  manufacturers.  The  retail 
membership  is  designedly  limited  to  one  hundred  stores  in 
widely  scattered  sections  of  the  city,  so  that  they  do  not  com- 
pete in  any  way  for  trade.  Thus  they  can  freely  enter  into 
the  fullest  co-operation,  exchanging  experiences  and  plans 
which  have  increased  sales,  without  any  fear  that  they  are 
revealing  these  things  to  competitors. 

The  manufacturing  members  pay  to  the  Wessels  Company 
two  hundred  and  fifty  dollars  a  month.  In  return,  the  retail 
members  are  to  make  every  effort  to  sell  the  goods  of  the 


58  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

supporting  manufacturers.  The  unique  feature  of  this  plan 
is  the  variety  of  ways  in  which  it  is  made  worth  the  while  of 
the  retailer  to  put  his  best  efforts  into  selling  the  goods  of  the 
manufacturers  affiliated  with  the  scheme.  The  Wessels 
Company  furnishes  to  the  retailers  a  corps  of  window  dressers, 
who  go  from  store  to  store  arranging  window  displays.  It 
furnishes  signs,  placards,  price  tags,  and  does  other  similar 
printing  for  its  members.  It  gives  to  each  retail  member  a 
weekly  advertising  newspaper.  The  Philadelphia  law  forbids 
the  placing  of  bills,  circulars,  notices,  or  advertisements  in 
streets,  vestibules,  yards  and  porches.  Newspapers  do  not 
fall  within  the  provisions  of  this  bill,  and  it  is  commonly  evaded 
by  distributing  four  page  circulars,  with  three  pages  devoted 
to  items,  stories,  and  articles  of  a  supposedly  news  character, 
and  the  fourth  to  advertising.  "The  Co-operator"  is  such  a 
"Newspaper."  A  large  number  of  copies  of  the  first  pages 
are  printed,  and  each  retailer  supplies  his  own  advertising  copy 
for  the  fourth  page.  He  is  required  to  take  at  least  five 
hundred  copies  a  week,  and  may  be  allowed  more.  The 
Wessels  Company  maintains  for  the  "Co-operators"  a  service 
department,  giving  suggestions  for  the  more  efficient  conduct 
of  business,  forwarding  of  important  information,  such  as 
ruUngs  of  the  Food  Administration  or  market  "tips"  by  tele- 
phone or  mail,  assisting  in  the  hauling  of  broken  motor  trucks, 
and  aiding  the  members  in  other  ways.  It  gives  salesmanship 
courses  to  the  clerks  of  the  "Co-operators,"  and  prizes  for  the 
clerks  increasing  their  sales  the  greatest  amount  each  month. 
It  maintains  a  club  and  clubroom  for  the  members  and  their 
clerks.  The  "Co-operators"  meet  once  every  two  weeks.  At 
these  meetings,  they  discuss  their  common  problems,  meet 
the  representatives  of  the  manufacturers  allied  with  the  plan, 
receive  suggestions  and  instructions  for  the  sale  of  these 
particular  goods  and  for  the  general  conduct  of  their  business.^*^ 
This  plan  involves,  unlike  the  Triangle  and  Community 
Stores  plan,  no  attempt  to  control  the  channels  of  wholesale 

^*  Detailed  accounts  of  the  plan  may  be  found  in  the  Grocers'  Review,  September  1918, 
pp.  536-540,  and  in  booklets  published  by  the  C.  M.  Wessels  Company,  917  Chestnut  St., 
Philadelphia. 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  59 

distribution.  All  of  the  "Co-operators"  are  members  of  the 
Girard  or  Frankford  Grocery  Companies,  and  purchase  their 
supplies  thru  those  two  companies.  Like  the  other  three  plans 
described,  it  means  that  the  manufacturer  is  adopting  some 
agency  other  than  wholesaler's  salesmen  for  the  promotion  of 
his  goods.  Instead  of  relying  upon  the  regular  wholesaler  to 
push  his  goods,  he  is  offering  special  inducements  to  the  re- 
tailers to  push  them. 

The  manufacturer,  then,  considering  the  exploitation  of  the 
Philadelphia  market,  had  a  number  of  channels  of  approach 
open  to  him.  He  might  follow  the  beaten  trail  and  depend 
upon  the  wholesalers  to  introduce  and  push  his  goods  thru 
their  salesmen,  with  some  advertising  support  from  him.  He 
might  make  a  special  arrangement  with  the  wholesalers,  take 
advantage  of  the  Community  Stores  plan,  giving  the  Whole- 
sale Grocers'  Sales  Company  special  discounts  for  their  services 
in  promoting  his  wares,  receiving  in  return  the  assistance  of  the 
wholesale  salesmen  in  vigorously  pushing  them,  and  theoreti- 
cally, a  similar  service  from  the  retailers  affiliated  with  the 
movement.  Or  he  might  support  the  "Pennsylvania  Plan," 
paying  the  Wessels  Company,  and  receiving  in  return,  pre- 
sumably, the  support  of  the  members  of  the  Retail  Merchants' 
Association  of  Pennsylvania  thruout  the  state.  Or  he  might 
make  a  similar  arrangement  with  the  "Co-operators/'  receiving 
preferential  treatment  by  a  limited  number  of  retailers  in  the 
city  alone.  Or,  he  might  support  the  "Triangle  plan,"  paying 
his  money  to  the  "Inquirer"  for  advertising  space,  receiving  in 
return  the  special  efforts  of  the  members  of  the  Retail  Grocers' 
Association  of  Philadelphia  in  selling  his  goods,  with  the 
prospect  of  receiving  prizes  or  dividends  from  the  "Inquirer." 
Or  he  might  use  the  special  salesmen  of  the  Girard  or  Frankford. 
Or,  finally,  he  might  send  his  own  salesmen  to  visit  the  retailers, 
selling  to  them  directly  or  thru  any  wholesalers,  including  the 
Girard  and  Frankford.  In  each  case,  as  we  have  said,  there  are 
selling  expenses  and  these  will  form  part  of  the  cost  of  pro- 
duction of  the  good,  using  production  in  the  economic  sense 
of  the  entire  process  necessary  to  bring  a  good  to  the  final 


6o  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

consumer.  Presumably  the  experience  of  the  various  manu- 
facturers will  in  time  show  which  of  these  plans  are  the  most 
efficient.  The  effectiveness  of  any  one  plan  will  doubtless 
differ  greatly  with  different  commodities.  That  which  is,  in 
a  large  number,  if  not  all  cases,  expensive  and  inefficient,  will 
be  given  up.  Those  which  combine  economy  and  efficient 
sales  promotion,  in  a  large  number  of  cases  will  continue. 

The  most  vulnerable  point  in  these  plans  seems  to  be  that 
pointed  out  by  the  representative  of  the  H.  O.  Wilbur  & 
Sons  Company,  quoted  above,  failure  to  interest  sufficiently 
the  retailer.  The  rewards  offered  to  him  for  special  efforts 
are  frequently  too  remote,  or  too  small  to  arouse  any  real 
enthusiasm  or  effort.  Coupled  with  this,  we  have  the  fact 
that  the  average  retail  grocer  is  not  a  person  of  great  intelli- 
gence or  skill.  An  enterprising,  intelligent  grocer  can  without 
doubt  do  a  great  deal  in  guiding  the  choices  of  his  patrons, 
and  in  selling  them  articles  which  they  did  not  intend  to 
purchase  upon  entering  the  store.  On  the  other  hand  many 
retail  grocers  have  not  much  ability  in  this  direction.  They 
are  limited  to  giving  what  is  desired,  frequently  not  even 
suggesting  substitutes  or  additional  purchases.  All  who  are 
familiar  with  retail  grocers  as  a  class  agree  in  stating  that 
there  are  many  among  them  who  are  of  this  type,  who  lack  the 
skill  and  tact  and  judgment  necessary  to  make  a  real  salesman. 

One  of  the  weaknesses  of  the  Community  Stores  plan  was 
just  this — its  failure  to  arouse  any  strong  interest  in  the  re- 
tailers. Apparently,  it  is  to  be  counted  as  one  of  the  plans, 
at  least,  which  by  actual  test,  was  proved  less  efficient  than 
some  of  the  others.  Of  all,  it  made  perhaps  the  weakest  appeal 
to  the  retailer.  Of  the  various  competing  plans,  the  Triangle 
plan  and  the  "Co-operators"  would  seem  to  be  the  strongest  in 
this  respect.  The  former  pays  dividends  directly  to  the  re- 
tailer. The  latter  gives  him  a  large  number  of  valuable  ser- 
vices. The  Pennsylvania  Plan  is  less  direct  in  its  appeal  to 
the  individual. 


CHAPTER  V 

COMPARATIVE    ADVANTAGES   OF    WHOLESALERS 
AND  CO-OPERATIVE  ASSOCIATIONS 

In  the  struggle  between  the  regular  wholesalers  and  the 
co-operative  associations,  each  side  has  certain  advantages. 
First  among  the  advantages  of  the  wholesalers  is  that  they 
give  credit,  while  the  Frankford  and  Girard  do  not,  to  any 
extent.  Many  of  the  retailers,  particularly  those  doing  busi- 
ness on  a  credit  basis  with  their  customers,  have  to  receive 
credit  from  their  wholesaler  to  some  extent,  at  least.  The 
result  is  that  some  deal  with  the  wholesalers  exclusively, 
while  others  purchase  some  of  their  goods  from  the  associations 
and  the  remainder  from  the  wholesalers.  A  very  large  pro- 
portion of  the  members  of  the  two  associations  are  in  this 
position.  They  buy  from  the  Girard  or  Frankford,  perhaps 
to  the  extent  to  which  they  can  make  cash  purchases,  and  then 
on  credit  from  the  regular  wholesalers.  The  question  natur- 
ally arises,  why  do  they  not  make  use  of  some  other  means 
of  raising  their  capital,  such  as  borrowing  from  banks.  Those 
familiar  with  the  habits  of  the  retail  grocer  agree  in  stating 
that  practically  never  does  he  try  to  borrow  from  a  bank. 
This  of  course  does  not  apply  to  the  firms  carrying  on  large 
retail  businesses  in  the  center  of  the  city,  or  the  more  pro- 
gressive and  prosperous  neighborhood  stores,  but  to  the  typical 
neighborhood  store,  with  a  small  stock,  and  the  proprietor  and 
his  family  carrying  on  the  trade,  and  serving  the  customers. 
There  are  two  fundamental  reasons  why  men  of  this  type 
do  not  borrow  from  banks.  In  the  first  place,  they  are  ignor- 
ant of  banking  methods  and  facilities.  As  has  been  remarked 
in  another  connection,  rhany  of  them  do  not  even  have  bank 
accounts.  In  the  second  place,  even  though  they  were  desirous 
of  borrowing  from  a  banking  institution,  in  many  cases  they 
could  not  give  sufficient  security.     They  do  not  own  their 


62  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

Stores.  The  equipment  may  be  purchased  on  the  installment 
plan.  Their  own  capital  is  represented  by  accounts  receivable, 
and  the  stock  of  goods  to  be  sold. 

In  connection  with  the  recent  campaign  carried  on  by  bank- 
ing interests  for  the  extension  of  the  use  of  trade  acceptance, 
efforts  were  made  to  persuade  wholesale  grocers  to  adopt  it  in 
their  relations  with  the  retailers.  For  those  unfamiliar  with 
the  term,  it  may  be  explained  that  a  trade  acceptance  is  a 
draft  drawn  upon  the  purchaser  of  goods  by  the  seller,  and 
accepted  by  the  former.  Its  distinguishing  feature  is  that  its 
use  is  limited  to  obligations  arising  out  of  the  sale  of  goods. 
Under  the  present  system,  the  wholesale  grocer  who  sells 
goods  on  credit  to  retailers  has  no  evidence  of  their  indebted- 
ness to  him  except  his  book  accounts.  He  may  secure  his  own 
capital  by  giving  his  promissory  notes,  receiving  credit  from  the 
manufacturers,  or  borrowing  on  security  from  the  banks.  As 
opposed  to  this  method,  the  banking  interest  supporting  the 
trade  acceptance  argues  that  it  would  have  many  advantages 
from  the  standpoint  of  the  wholesale  grocer.  He  would  have 
the  signature  of  his  retail  customer  to  a  negotiable  instrument 
as  evidence  of  the  debt.  The  acceptance  would  be  readily 
discounted  by  any  bank,  for  as  two-name  commercial  paper,  it 
is  specially  favored  by  the  Federal  Reserve  System.  Thus 
merchandising  transactions  would  practically,  from  the  stand- 
point of  retailer  and  wholesaler,  finance  themselves.  The 
wholesaler  would  have  his  money  promptly  in  hand,  and  would 
thus  be  able  to  pay  manufacturers  promptly,  taking  advantage 
of  all  cash  discounts.  In  many  cases,  it  is  argued,  the  gain 
he  would  have  from  these  discounts  for  cash  would  more  than 
offset  the  loss  suffered  thru  discounting  the  trade  acceptance. 
The  retailer  would  have  to  meet  the  payment  of  the  acceptance 
when  it  becomes  due,  instead  of,  as  is  now  frequently  the  case, 
carrying  an  account  for  long  periods,  and  making  occasional 
part  payments.  The  collection  of  debts  would  be  removed 
from  the  list  of  duties  of  the  wholesaler's  salesmen,  for  they 
would  be  collected  by  the  banks  as  the  acceptances  fell  due. 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  Gi^ 

The  wholesale  grocers  themselves  do  not  regard  the  pro- 
posal to  use  the  trade  acceptance  in  their  business  with  favor. 
Various  state  associations  of  wholesale  grocers  and  the  National 
Wholesale  Grocers'  Association  have  appointed  committees 
to  look  into  the  question  of  the  use  of  the  trade  acceptance  in 
the  business,  and  the  reports  of  these  committees  have  been 
against  its  adoption.  The  state  and  national  conventions 
have  adopted  resolutions  stating  that  while  they  recognize  the 
value  of  the  trade  acceptance  in  many  lines  of  business,  they 
do  not  believe  that  its  adoption  in  the  grocery  business  would 
be  desirable.^  They  argue  that  there  are  two  important 
reasons  why  this  is  true.  In  the  first  place,  the  sums  for  which 
credit  are  given  are  too  small.  The  report  of  the  committee 
on  trade  acceptance,  at  the  convention  of  the  National  Whole- 
sale Grocers'  Association  in  June,  191 8,  stated  that  the  average 
grocery  bill  due  from  the  retailer  is  for  about  forty  dollars  only. 
Enthusiastic  advocates  of  the  acceptance  method  believe 
that  it  is  hardly  worth  while  to  draw  acceptances  for  less  than 
one  hundred  dollars,  so  that  they  do  not  seem  practical,  if  the 
acceptances  are  to  be  drawn  for  single  bills.  To  draw  accept- 
ances against  occasional  large  bills,  and  carry  small  ones  as 
open  book  accounts  would  result  in  confusion.^ 

The  second  reason  why  the  wholesale  grocers  oppose  the 
adoption  of  the  acceptance  is  the  fact  that  the  present  tendency 
in  their  business  is  to  shorten  the  period  for  which  credit  is 
allowed,  with  the  result  that  in  many  parts  of  the  country 
terms  have  been  reduced  to  thirty  days.  The  statement  of 
wholesale  grocers  in  Philadelphia  show  that  the  period  of 
credit  there.is  even  shorter.  For  three  representative  firms, 
the  average  period  is  fourteen  or  fifteen  days.  A  fourth, 
doing  what  it  styles  "a  high  class  fancy  business,"  collects  its 
bills  on  the  average,  in  twenty-eight  days.  Thirty  days  is 
a  short  term  for  a  trade  acceptance,  and  it  does  not  seem 
practical  to  draw  them   for  shorter  terms.     Those  who  are 

*  American  Grocer,  Mar.  20, 191 8,  pp.  4,  and  14;  June  19,  191 8,  p.  26. 

'  American  Grocer,  June  19,  191 8,  p.  26.    Report  of  the  Committee  on  the  Trade  Accept- 


64  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

giving  thirty  days  are  frequently  paid  in  shorter  periods,  and 
hope  to  reduce  the  term.  The  adoption  of  the  trade  acceptance 
would  check  both  of  these  tendencies  toward  the  reduction 
of  credit.  Those  who  are  being  paid  in  shorter  periods  are 
opposed  to  any  movement  which  would  mean  a  lengthening 
of  the  term. 

A  less  important  argument  advanced  by  the  wholesalers 
against  the  trade  acceptance  is  that  it  encourages  businesses 
operated  on  insufficient  capital.  A  man  may  increase  his 
business  almost  indefinitely  by  accepting  for  goods  purchased, 
risking  his  creditors*  capital  instead  of  his  own.  This  objection 
seems  to  lack  the  weight  of  the  previous  ones.  Since  the 
wholesalers  drawing  upon  the  retailer  would  thereby  become 
his  sureties,  liable  in  his  place  if  he  were  unable  to  pay,  they 
would  have  just  as  much  incentive  to  see  that  the  retailer  were 
not  taking  goods  for  which  he  was  unable  to  pay  as  they  do 
now.  Further,  it  is  difficult  to  see  how  the  acceptance  method 
would  encourage  the  operation  of  business  on  insufficient 
capital  any  more  than  does  the  financing  of  retail  stores  by 
wholesalers.  Under  the  latter  method  a  retailer  may  and 
frequently  does,  carry  his  accounts  much  beyond  the  stipulated 
terms.  The  wholesaler  will  keep  him  in  business  by  granting 
him  extensions,  and  accepting  part  payments  on  account.  With 
the  acceptance  method,  he  would  have  to  pay  up  promptly  or 
face  disaster.  The  retailer  who  failed  to  meet  his  acceptance 
would  not  remain  long  in  business.  The  other  two  objections 
appear  to  have  considerable  weight.  It  seems  then  that  the 
methods  suggested  as  alternatives  to  the  financing  of  retail 
stores  by  the  wholesalers  are  not  at  present  practical  so  that  as 
long  as  the  retailers  give  credit  to  their  customers,  and  must 
borrow  capital,  they  will  do  so  by  buying  on  credit  from  the 
wholesalers. 

Another  objection  from  the  standpoint  of  the  wholesaler 
has  been  suggested — that  mentioned  above,  that  the  whole- 
saler retains  a  contingent  Hability  under  the  acceptance,  being 
liable  as  drawer  until  the  retailer  pays.     However,  in  practice, 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  65 

this  is  little  different  from  the  present  system.  If  the  retailer 
is  unable  to  pay  his  account,  the  wholesaler  is  the  loser. 

A  second  advantage  enjoyed  by  the  wholesaler  over  the 
Girard  and  Frankford  is  the  better  service  of  the  former.  As 
has  been  stated,  the  co-operative  companies  restrict  their 
deliveries  to  one  a  week  per  customer.  The  Girard  charges 
one  per  cent  of  an  order  for  delivering  it.  The  Frankford 
gives  free  deliveries,  but  allows  a  discount  of  one  per  cent  to 
purchasers  who  regularly  haul  their  own  orders.  It  charges 
twenty-five  cents  for  each  extra  order  above  the  one  a  week. 
In  addition,  it  has  stringently  enforced  rules  as  to  the  days 
on  which  orders  must  be  in,  and  when  they  will  be  delivered 
in  the  various  sections.  Further,  the  deliveries  ma^le^y  the 
Frankford  are  only  pavement  deliveries,  while  theMvholesaler 
will  put  the  goods  in  the  retailer's  cellar  or  store.  Many  of  the 
retail  stores  are  run  by  women.  In  others,  the  proprietor 
may  leave  his  wife  in  charge.  Under  such  circumstances,  it 
is  something  of  a  disadvantage  to  have  to  move  bulky  packages 
from  the  pavement.  The  regular  wholesalers  will  deliver  as 
many  orders  as  a  man  may  want  in  a  week.  If  a  suburban 
grocer  telephones,  wants  goods  in  a  hurry,  and  there  is  no 
delivery  scheduled  in  his  section  for  a  few  days,  the  wholesaler 
will  send  the  shipment  to  him  by  express,  altho  it  may  cost 
more  than  his  profit  on  the  order. 

In  other  ways,  the  service  given  by  the  wholesaler  is  more 
convenient.  The  Frankford,  for  instance,  makes  a  small  charge 
for  breaking  a  case,  that  is  for  selling  a  man  less  than  a  case  of 
goods. 

The  wholesalers  do  not  seem  to  have  any  advantage  in  the 
variety  and  completeness  of  their  stocks.  Most  of  the  retailers 
interviewed  state  that  the  Girard  or  Frankford  carry  almost 
anything  they  want,  except  private  brands  of  canned  goods, 
preserves,  and  other  commodities.  In  these  lines,  many  of 
the  large  wholesale  houses  have  their  private  brands  with 
their  own  labels.  The  American  Stores  Company  and  the 
two  associations  also  have  private  brands.  For  instance,  the 
Frankford  advertises  "Unity  Butter,"  the  Girard  "Triangle 


66  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

Coffee."  These  private  brands  can  of  course  be  obtained  only 
from  the  wholesaler  whose  name  appears  on  the  labels.  If  a 
retailer  is  met  by  a  considerable  demand  among  his  patrons 
for  a  certain  brand  of  canned  goods,  or  coffee,  or  other  article, 
he  will  have  to  go  to  the  wholesaler  who  handles  it  to  obtain  it. 

A  third  tactical  advantage  of  the  regular  wholesalers  is 
their  salesmen.  These  not  only  promote  the  sales  of  goods, 
and  help  greatly  in  the  introduction  of  new  goods  to  the  trade, 
but  they  also  establish  a  personal  connection  between  the 
wholesale  house  and  the  retailers.  The  wholesale  salesman 
not  only  sells  the  retailer  goods,  but  also  gives  him  suggestions 
and  advice  as  to  the  conduct  of  his  business,  the  trend  of  the 
market,  the  prospects  of  increasing  or  falling  prices.  During 
the  war,  the  Food  Administration  depended  to  a  large  extent 
upon  the  wholesale  salesmen  to  keep  the  retailers  informed  as 
to  the  regulations,  to  explain  the  various  rulings  and  calcula- 
tions involved  in  figuring  margins,  and  other  points  to  them. 
Many  retailers  depend  to  a  great  extent  upon  the  advice 
thus  received.  They  stock  up  with  an  article  when  the  sales- 
men tell  them  that  the  price  is  likely  to  increase,  or  hold  off 
when  he  advises  them  that  it  is  likely  to  go  down.  It  is  thus 
possible  for  a  wholesale  salesman  to  exercise  considerable 
influence  over  his  retail  customers. 

In  contrast  with  these  advantages  of  the  old  type  whole- 
saler, there  is  another  series  of  factors  which  work  to  the 
advantage  of  the  co-operative  associations.  In  the  first  place, 
they  have  extremely  low  costs  of  doing  business,  due  in  part 
to  the  curtailment  of  service,  and  in  part,  apparently,  to  the 
superior  organization.  In  place  of  the  eight  to  ten  per  cent 
of  total  sales  which  is  the  cost  of  doing  business,  on  the  average, 
for  the  wholesale  grocer,  the  Girard  Company,  according  to 
its  annual  reports,  has  a  cost  of  little  over  three  per  cent.  For 
the  fiscal  year  ending  June  30,  191 8,  it  was  3.32  per  cent; 
for  that  of  June  30,  191 9,  3.42  per  cent.'  The  Frankford 
Grocery  Company  states  that  its  cost  of  doing  business  runs 
about  3.5  per  cent  per  year.     It  is  interesting  to  inquire  where 

'  Grocers*  Review,  August  191 9,  p.  388. 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  67 

the  Girard  and  Frankford  make  this  saving.     According  to 

the  Bulletin  of  the  Harvard  Bureau  of  Business  Research,  the 

common  operating  expenses  in  the  wholesale  grocery  business, 

listed  according  to  items,  are  as  follows: 

Item  Percentage  of  Net  Sales 

Total  salesforce  expense 1.3 

Advertising 0.07 

Other  selling  expenses 0.06 

Total  selling  expenses 2.5 

Salaries  and  wages  of  receiving,  warehouse  and  shipping  force 1.15 

Packing  cases  and  wrappings 0.04 

Outward  freight,  Express,  Parcel  Postage,  and  Cartage 0.4 

Total  receiving,  handling  and  shipping  expense 1.6 

Salaries  of  buying  force 0.35 

Other  buying  expenses 0.03 

Total  buying  expense 0.4 

Executive  salaries 0.5 

Office  salaries 0.7 

Postage  and  office  supplies 0.23 

Telephone  and  telegraph 0.05 

Credit  and  collection  expense 0.06 

Other  management  expense o.i 

Total  general  management  and  office  expense 1.6 

Total  interest 1.55 

Rent 0.4 

Heat,  light  and  power 0.05 

Taxes 0.2 

Insurance  (except  on  buildings) o.i  i 

Repairs  of  equipment 0.05 

Depreciation  of  equipment 0.1 

Total  fixed  charges  and  upkeep  expense 2.5 

Miscellaneous  expense 0.1 1 

Losses  from  bad  debts 0.3* 

Of  these  items,  the  Girard  and  Frankford,  as  a  result  of  their 
method  of  doing  business,  do  not  have  the  salesforce  expense 
(2.3%),  and  losses  from  bad  debts  (0.3%)  are  practically 
nothing.  These,  however,  amount  to  only  2.6  per  cent,  while 
the  figures  of  the  two  companies  are  about  6  per  cent  less  than 
those  given  as  common  by  the  Bureau.  The  co-operative 
companies  probably  also  make  considerable  reductions  in  their 
expenses  under  advertising  (0.07%)  and  other  selling  expense 

*  Bureau  of  Business  Research,  Harvard  University,  Bulletin  No.  9,  p.  5. 


68  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

(0.06%).  They  actually  do  very  little  advertising.  The 
associations  advertise  considerably,  but  the  money  comes  out 
of  the  association  funds,  presumably,  not  out  of  the  grocery 
business.  The  Girard  would  practically  eliminate  the  out- 
ward freight  (0.4%)  and,  with  the  Frankford,  it  would  be 
materially  reduced.  As  a  result,  the  expenditure  for  packing 
cases  and  wrappings  (0.04%)  would  also  be  reduced.  The 
associations  state  that  their  executive  salaries  (0.5%)  are  much 
lower  than  those  of  private  firms,  and  this  is  probably  another 
source  of  saving.  The  secretaries  of  the  associations,  who  are 
the  managers  of  the  grocery  businesses,  maintain  that  their 
salaries  are  not  so  high  as  those  of  men  in  corresponding  posi- 
tions in  private  firms.  The  members  of  a  firm  usually  pay 
themselves  substantial  salaries,  and  expect  a  profit  in  addition. 
A  related  charge  is  that  brought  against  the  private  firms  by  the 
co-operative  managers  that  the  former  have  unnecessarily 
large  office  forces.  The  heads  of  the  firm  can  take  a  month's 
vacation,  and  the  business  will  run  along  as  usual.  It  is  not 
so  easy  to  dispense  with  the  manager  of  a  co-operative  house. 
He  must  be  on  the  ground,  or  in  constant  touch  with  the 
business  for  it  to  run  smoothly.  On  the  other  hand,  the 
wholesalers  argue  that  they  frequently  carry  on  their  business 
on  small  or  no  profits.  In  a  bad  year,  they  will  draw  little  or 
nothing  out  of  the  business,  not  even  crediting  themselves 
with  salaries.  Probably  such  a  condition  does  not  occur  for 
many  years  in  succession,  however.  In  many  cases,  it  has 
been  something  of  a  personal  sacrifice  for  a  manager  to  remain 
with  a  co-operative  association.  The  simplicity  of  organiza- 
tion incident  to  the  lack  of  extended  credit  probably  means  a 
saving  in  office  salaries  (0.7%),  also,  and  perhaps  in  postage 
and  supplies  (0.23%).  Credit  and  collection  expenses  are 
doubtless  lower  than  for  the  usual  wholesaler  (0.6%),  and 
there  may  be  a  slight  reduction  in  other  management  expenses 

(0.1%). 

There  does  not  seem  to  be  any  reason  why  the  other  items 
included  in  the  above  list  should  be  lower  for  the  co-operative 
houses  than  for  private  wholesalers,  yet,  if  they  figure  their 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  69 

expenses  upon  the  same  basis,  such  must  be  the  case.  The 
total  of  the  items  mentioned  above,  in  which  it  seems  fairly 
certain  that  they  must  make  some  saving  amounts  to  only  2.16 
per  cent,  while  added  to  the  elimination  of  salesforce  expense 
and  losses  from  bad  debts,  the  total  is  but  4.76,  while  the 
total  difference  in  favor  of  the  associations  is  6.5.  The  Bulletin 
gives  the  low  and  high  as  well  as  the  common  figures  for  each 
of  the  items  in  the  above  list.  Taking  the  lowest  figures  for  all 
items,  except  salesforce,  advertising,  packing,  outward  express, 
and  credit  and  collection  and  losses  from  bad  debts,  the  sum 
is  2.72  per  cent  of  total  sales.  Thus,  assuming  that  the 
methods  of  figuring  the  costs  are  substantially  similar,  a  fact 
upon  which  the  Frankford  and  Girard  are  unwilling  to  throw 
any  light,  the  figures  show  that,  after  the  elimination  of 
salesforce  expense  and  losses  from  bad  debts,  other  expenses  are 
reduced  to  the  minimum  of  the  most  efficiently  managed  private 
firms. 

A  second  advantage  of  the  co-operative  associations  is  rapid 
turnover  of  capital.  The  Harvard  figures  give  the  turnovers 
for  regular  wholesalers  as  varying  from  2.8  times  per  year  to 
1 1.6  times,  with  the  common  figure  about  5.7  times.  For  the 
year  ending  June  30,  191 8,  the  Girard  Grocery  Company 
claims  a  turnover  of  16  times  during  the  year.  For  the 
following  year,  it  claims  a  turnover  of  14.^  The  Frankford 
Grocery  Company  states  that  its  turnover  is  about  twelve. 
This,  it  will  be  noted,  is  just  about  that  of  the  highest  private 
firms.  The  Girard's  figures  are  much  higher,  and  can  be 
explained  upon  the  basis  of  its  larger  sales.  Handling  the 
large  quantities  of  goods  which  it  does,  it  is  in  a  position  to 
turn  over  its  capital  very  rapidly. 

The  low  cost  of  doing  business  would  enable  the  Girard  and 
Frankford  companies  to  either  pay  very  high  dividends,  or  to 
sell  at  much  lower  prices  than  do  the  regular  wholesalers. 
There  is  no  doubt  that  they  do  the  former.  They  maintain 
that  they  do  the  latter.  The  representatives  of  the  associa- 
tions claim  that  their  prices  to  the  retail  grocer  are  from  five 

^  Grocers'  Review,  August  1919,  p.  388. 


70  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

to  fifteen  per  cent  lower  than  those  of  the  wholesalers,  with 
ten  per  cent  as  being  perhaps  the  average  difference.  An 
examination  of  price  lists  would  seem  to  be  an  easy  method  of 
checking  up  this  statement,  but  as  a  matter  of  fact  presents 
many  difficulties.  Many  of  the  items  on  a  price  list  of  a  pri- 
vate wholesaler  and  that  of  one  of  the  associations  are  dis- 
similar. Even  when  prices  are  given  on  the  same  article,  the 
quotations  may  be  for  purchases  at  different  times  and  different 
prices.  Discounts  may  be  given  for  larger  purchases  by 
retailers.  A  comparison  of  price  lists,  to  be  thoroly  valid, 
should  be  carried  on  over  a  considerable  period  of  time.  A 
careful  examination  of  price  lists,  however,  seems  to  bear  out 
the  contention  of  the  associations  that  they  do  sell  numbers  of 
articles  at  prices  lower  than  those  of  the  wholesalers.  The 
evidence  of  those  connected  with  the  grocery  business  appears 
to  have  value  on  this  point,  for  they  are  familiar  with  price 
ranges  over  several  years.  All  the  retailers  with  whom  the 
writer  has  discussed  the  question  agree  that  the  prices  of  the 
Girard  or  Frankford  are  lower  as  a  general  rule.  They  say 
that  occasionally  a  wholesaler  will  make  a  lucky  purchase, 
and  offer  certain  articles  more  cheaply  than  the  associations, 
but  that  these  cases  are  exceptional.  Even  grocers  not  con- 
nected with  the  associations,  and  not  purchasing  from  the  co- 
operative houses  admit  that  their  flat  prices  as  quoted  are 
lower.  When  asked  why  they  did  not  deal  there,  they  usually 
said,  "The  wholesalers  do  more  for  you.  They'll  deliver  the 
goods  when  you  want  them,  send  salesmen  around  after  your 
orders,  and  help  you  over  tight  places.  They're  anxious  to 
please  you."  Finally,  nearly  all  of  the  wholesalers  interviewed 
admitted  that  the  two  co-operative  associations  sell,  as  a  rule, 
more  cheaply  than  do  they  themselves,  if  flat  prices  are  taken 
as  the  basis  of  comparison.  But  they  present  another  view 
of  the  case.  They  argue  that  the  difference  is  about  five 
per  cent.  Remembering  that  the  Girard  and  Frankford  allow 
very  short  credit,  the  wholesaler  says  that  their  prices  should 
be  compared  to  his  after  the  deduction  of  a  discount  for  cash 
of  one  or  two  per  cent.     Then  there  would  be  added  to  the 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  71 

prices  of  the  Girard,  one  per  cent  for  hauling.  Add  the  charge 
for  breaking  cases,  the  twenty-five  cent  charge  for  extra  orders 
during  the  week,  and  the  annual  dues  of  the  association,  and 
there  is  not  much  difference.  If  there  were,  the  wholesalers 
argue,  they  would  soon  have  to  go  out  of  business.  This 
argument  has  a  certain  strength,  but  it  seems  to  underestimate 
the  savings  offered  by  the  associations  on  many  articles.  It 
seems  then  that  we  must  include  lower  prices  as  one  of  the 
advantages  which  the  co-operative  associations  have  in  the 
struggle  with  the  wholesalers. 

A  fourth  advantage,  closely  allied  to  this,  is  the  fact  that 
these  two  wholesale  houses  belong  to  the  retail  grocers  them- 
selves. As  a  result  they  command  the  interest  and  loyalty 
and  sentimental  support  of  the  grocers  to  an  extent  to  which 
a  regular  wholesaler  never  could.  Not  only  that,  but  they  are 
distinctly  profitable.  The  dividend  record  of  the  two  firms 
has  been  given,  showing  that  they  are  highly  desirable  invest- 
ments for  the  retail  grocer. 

On  the  other  hand,  the  co-operative  associations  because  of 
their  organization  are  subject  to  certain  weaknesses.  Many 
retailers  who  admit  that  their  prices  are  lower,  say  that  they 
prefer  to  deal  with  wholesalers,  because  of  the  better  service. 
Very  likely,  the  requirements  of  the  Girard  and  Frankford  of 
prompt  payment  is  a  feature  which  bars  many,  and  which 
they  would  be  least  hkely  to  mention.  In  some  cases,  however, 
the  writer  has  found  grocers  who  dislike  the  associations  be- 
cause of  the  rigidness  with  which  they  enforce  their  rules, 
and  what  they  term  their  "independence."  As  one  retailer 
expressed  it  *'They  act  as  if  they  didn't  care  whether  you  gave 
them  your  trade  or  not.  They  think  they're  doing  you  a  favor 
when  they  let  you  deal  there.  The  wholesalers  are  always 
anxious  to  get  your  orders." 

As  in  many  co-operative  enterprises,  the  success,  particularly 
in  the  early  stages,  seems  to  depend  very  largely  upon  the 
ability  of  the  small  group  who  are  back  of  the  movement,  and 
giving  it  their  support,  and  upon  their  earnestness  and  enthu- 
siasm.    Frequently,  it  reduces  itself  to  dependence  upon  one 


72  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

individual.  The  Frankford' Grocery  Company,  in  particular, 
seems  to  have  been  built  up  by  the  present  manager.  He 
was  the  moving  spirit  in  the  old  original  buying  exchange,  and 
he  has  worked  with  the  grocers  of  Frankford  for  twenty-six 
years,  preaching  co-operation  and  organization,  refusing  offers 
to  go  elsewhere  at  higher  salaries. 

In  this  connection,  it  is  interesting  to  note  that  several 
attempts  have  been  made  to  organize  other  co-operative  whole- 
sale grocery  companies  in  the  city.  As  far  as  the  writer 
knows,  all  have  ended  in  failure.  The  Richmond  Grocery 
Company  was  started  as  a  co-operative  company  of  Polish 
grocers.  There  were,  according  to  the  manager,  thirty  mem- 
bers. They  subscribed  the  capital,  amounting  to  |6ooo,  and 
were  to  share  the  profits.  It  was  in  operation  for  a  couple  of 
years,  and  then  broke  up.  The  venture  does  not  seem  to  have 
yielded  the  expected  profits.  The  manager  said  the  trouble 
was  that  the  capital  was  too  small,  and  urged  the  members 
to  put  in  more  funds.  This  they  refused  to  do,  and  withdrew. 
The  former  manager  is  carrying  on  the  business  as  a  private 
enterprise. 

Another  attempt  at  the  formation  of  a  co-operative  whole- 
sale grocery  company  was  the  Standard  Grocery  Company. 
It  was  organized  as  such,  and  had,  according  to  the  statement 
of  the  former  manager,  two  hundred  and  twenty-five  members 
at  the  time  of  its  largest  development.  It  aimed  to  operate 
on  much  the  same  plan  as  the  Girard.  The  capital  was  divided 
into  twenty-five  dollar  shares,  and  subscribed  by  the  retailers. 
Purchasers  were  to  pay  their  bills  weekly.  This  company 
operated  as  a  co-operative  enterprise  for  about  a  year,  and  then 
met  the  fate  of  the  Richmond  Company.  The  trouble, 
apparently,  in  this  case,  was  inability  of  the  retailers  to  pay 
their  bills  as  required.  They  were  all  small  grocers,  and  had 
much  difficulty  in  raising  the  capital  to  put  into  the  company, 
and  meet  their  debts  on  time.  Like  the  Richmond,  it  has 
continued  business  as  a  private  company. 

These  two  examples  show  that  it  is  not  inherently  an  easy 
task  to  organize  a  successful  co-operative  grocery  business. 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  73 

In  fact,  in  Philadelphia  at  least,  in  this,  as  in  every  other 
business,  the  failures  outnumber  the  successes.  The  requisites 
for  success  are  a  number  of  enthusiastic  retailers,  and  an 
organizer  who  combines  business  ability  with  power  of  leader- 
ship and  willingness  to  serve  at  a  sacrifice. 

The  Girard  and  Frankford  Companies  have  found  these 
essentials  in  their  early  days,  and  are  now  dominating  factors 
in  the  distributing  system  of  Philadelphia. 


CHAPTER  VI 

EFFICIENCY  OF  THE  CO-OPERATIVE  ASSOCIATIONS 

Two  questions  have  been  suggested  in  regard  to  the  develop- 
ment of  the  Girard   and  Frankford  Companies.     The  first 
of  these  was:    What  is  the  effect  of  this  development  upon 
the  efficiency  of  the  system  of  distributing  groceries?    Of  the 
functions  of  the  wholesale  grocer,  the  co-operative  associations   ' 
can  perform  four  at  least  as  well,  and  in  some  cases  better, 
than  the  regular  wholesaler.     The  latter  applies  to  the  receiv- 
y      ing  of  quantity  shipments  from  the  manufacturers.     The  co- 
operative associations,  because  of  their  large  size,  can  do  this 
better  than     the  single  independent  wholesaler.     They  can 
take  larger  shipments,  with  the  resulting  saving.     The  forma- 
tion of  the  Wholesale  Grocers'  Sales  Company  is  evidence 
that  the  wholesalers  in  Philadelphia,  as  individuals,  did  not 
command  sufficient  business  to  be  able  to  fulfill  this  function 
in  the  most  economical  manner. 
^    /  The  associations  can  store  the  shipments  just  as  efficiently 
CIS  the  wholesalers. 
(^/       The  success  with  which  they  can  regulate  the  flow  of  goods 
'"■■^'     to  the  local  markets  depends  largely  upon  the  ability  of  the 
managers.     If  they  secure  efficient  managers,  thoroly  familiar 
with  the  local  conditions  and  with  the  grocery  trade  outside 
as  a  whole,  there  is  no  reason  why  they  cannot  do  this  as  well 
as  the  regular  wholesaler.     The  one  feature  of  their  methods  1 
which  might  in  any  way  be  a  handicap  is  the  fact  that  they  do  \ 
not  indulge  in  speculative  transactions.     Thus  it  is  that  the  \ 
regular  wholesalers  occasionally  are  able  to  undersell  them,     v 
Their  prices  and  dividend  records  show  pretty  clearly  that 
this  is  not  much  of  a  handicap.     Reckoned  upon  sales,  the 
profit  of  the  Girard  is  not  so  high  as  those  of  regular  whole- 
salers.    According  to  the  figures  of  the  Harvard  Bureau  the 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  75 

common  net  profit  is  2.4%  of  sales. ^  From  the  statement  on 
page  23  preceding,  it  will  be  seen  that  for  the  year  ending 
June  30,  1919,  the  profit  of  the  Girard  was  J  104,794.72.  This 
is  only  1.73%  of  the  total  sales  of  $6,053,41 7.65.  The  rapid 
turnover  of  the  Girard  brought  the  dividend  earned  on  capital, 
however,  up  to  21%.  With  a  manager  of  ability,  the  co- 
operative companies  ought  to  be  able  to  perform  the  function 
of  regulating  the  flow  of  goods  more  efficiently  than  the 
regular  wholesalers.  Xh^y  have  a  closer  touch  with  a  larger 
number  of  retailers  than  have  the  latter  individually. 

Finally,  the  co-operative  company  is  just  as  capable  of 
accounting  for  the  goods  handled  as  is  a  private  firm. 

These  companies,  however,  fail  to  perform  two  of  the 
functions  of  the  wholesaler.  \/They  do  not  finance  retail  stores 
and  they  do  little  to  promote  the  sales  of  goods,  and  introduce 
new  articles. 

Nor  do  they  perform  as  efficiently  as  the  regular  wholesaler 
the  function  of  furnishing  the  retail  stores  with  the  goods 
needed,  at  the  time  they  are  required. 

The  fact,  however,  that  the  co-operative  associations  fail  to 
perform  certain  of  the  functions  usually  performed  by  the 
wholesale  grocer  does  not  necessarily  of  itself  condemn  them. 
It  simply  brings  up  the  further  question.  Who  is  performing 
these  functions  in  the  large  number  of  cases  of  retailers  dealing 
with  the  associations,  and  are  they  being  performed  more  or  less 
efficiently  ?  The  consideration  of  this  question  may  show  that 
because  they  have  eliminated  certain  features  of  the  whole- 
saler's activity,  they  are  more  economical  instruments  of 
distribution. 

Probably  the  majority  of  the  grocers  who  are  members  of 
the  two  associations  also  buy  considerable  quantities  of  goods 
from  the  regular  wholesalers.  While  they  pay  promptly  for 
the  goods  purchased  from  the  former,  they  get  credit,  for  a 
short  period  at  least,  for  the  latter.  The  influence  of  the  ^ 
associations,  then,  is  to  restrict  the  retail  grocery  business 
to  those  who  have  some  responsibility  and  capital,  and  to 

*  Bureau  of  Business  Research,  Harvard  University,  Bulletin  No.  9,  p.  5. 


76  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

encourage  prompt  payment  of  bills.  It  cannot  be  said  that 
it  has  accomplished  either  of  these,  because  the  grocer  who 
has  small  capital  can  still  secure  credit  from  the  wholesalers. 
Recently,  however,  they  have  also  tightened  up  their  credit 
requirements.  The  fact  that  for  at  least  three  of  the  Phila- 
delphia wholesale  firms,  the  period  of  credit  averages  about 
two  weeks  has  been  mentioned.  This  appears  to  have  been  a 
development  of  the  last  two  or  three  years,  and  to  be  largely  a 
result  of  the  greater  harmony  of  interests  brought  about 
by  the  Wholesale  Grocers'  Sales  Company.  The  same  pressure 
which  has  forced  the  wholesalers  to  combine  their  purchases 
to  secure  the  most  favorable  terms  has  led  them  to  co-operate 
in  making  their  credit  extensions  more  strict,  and  requiring 
the  retailers  to  be  more  prompt  in  payments.  That  pressure 
has  largely  come  from  the  influence  of  the  co-operative  asso- 
ciations. The  wholesalers  have,  to  a  certain  degree,  been 
forced  to  approach  their  methods. 

In  this  connection,  it  should  be  recalled  that  the  retailing 
process  is  the  most  expensive  in  the  whole  course  of  agencies 
which  bring  goods  to  the  consumer  from  the  manufacturer. 
One  of  the  reasons  suggested  for  this,  both  by  many  connected 
with  the  business,  and  by  outside  students,  is  that  there  are  i 
I^Lnyretail  stores. ^  There  is  much  evidence  that  this  | 
can  be  substantiated ' ltl"the  case  of  grocery  stores  in  the  city 
of  Philadelphia,  at  least.  Along  the  streets  devoted  to  small 
retail  stores  in  the  residence  neighborhoods,  such  as  Frankford 
Avenue,  Germantown  Avenue  and  Ridge  Avenue,  there  will 
frequently  be  two  or  three  grocery  stores  to  a  block.  In 
many  places,  two  of  the  corners  of  intersecting  streets  will 
be  occupied  by  grocery  stores.  In  1910,  there  was  in  the  city 
one  retail  grocery  store  to  every  59  families,  or  295  people,  not 
including  delicatessen  and  other  stores  selling  groceries  as  a 
"side  line.**     It  was  estimated  that  the  trade  from  59  famiUes 

*See  for  example,  Seager,  Principles  of  Economics,  p.  498;  Grocers'  Review,  September, 
1917,  p.  494.  The  last,  an  address  by  Carl  H.  Fast  states  that  in  England  the  cost  of  doing 
business  in  retail  chain  stores  is  10%,  while  in  the  United  States,  it  is  20%,  and  says  "Credit 
has  been  extended  in  the  United  States  beyond  all  wise  limitations  in  the  wild  scramble  for 
business."  The  opposite  view  is  taken  by  L.  D.  H.  Weld  in  The  Marketing  of  Farm  Products, 
P-  437- 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  77 

was  sufficient  to  allow  a  grocer  an  income  of  $640  or  less  above 
expenses.^  A  neighborhood  does  not  require  three  or  four 
stores  within  one  block  to  serve  it,  yet  the  average  city  block 
contains  more  than  fifty-nine  houses.  This  duplication  of 
capital  and  effort  results  in  inefficiency,  high  prices,  and  low 
rewards  for  the  retailers.  Furthermore,  it  is  extremely  easy 
to  enter  the  retail  grocery  business.  Those  familiar  with  the 
situation  in  Philadelphia  state  that  within  the  past  few  months, 
a  large  number  of  newcomers  have  entered  the  business  in 
that  city.  Many  have  succeeded  in  saving  a  small  sum  as  a 
result  of  war  prosperity,  and  are  investing  it  in  a  grocery  store. 
It  is  estimated  that  with  three  to  five  hundred  dollars,  and 
credit,  a  person  can  open  a  store.  Here  again,  the  influence  of 
the  co-operative  associations  would  be  to  render  it  less  eas 
to  O-perLnew  stores,  and  to  decrease  the  number  of  stores,  mru 
their  more  stringent  credit  requirements. 

The  failure,  then,  of  these  associations  to  give  credit  for 
extended  terms,  is  not  a  cause  for  condemning  them  on  the 
charge  of  inefficiency,  but  rather  an  introduction  of  more 
efficient  and  economical  business  methods.  Its  net  tendency 
is  to  restrict  the  business  to  those  who  can  finance  their  own 
stores,  instead  of  depending  upon  the  wholesalers.  This 
means  that  the  retail  grocery  business  would  be  restricted 
to  those  who  have  some  capital  and  responsibility.  This 
would  tend  to  decrease  the  number  of  stores,  and  reduce  the 
costs  of  distribution.  This  tendency  has  not  operated  very 
strongly  because  of  the  continuation  of  the  old  methods  of 
the  wholesalers,  but  insofar  as  they  have  modified  their  methods 
to  meet  the  competition  of  the  Girard  and  Frankford  in  the 
matter  of  credit,  the  influence  of  those  two  companies  has  been 
a  thoroly  healthy  one. 

The  second  function  which  the  Associations  fail  to  perform* 
is  that  of  promoting  the  sales  of  goods,  and  introducing  new  \ 
goods.     The  lack  of  salesmen  is  at  the  same  time  one  of  their  I 
weaknesses  and  their  greatest  single  source  of  saving.     The  1 

»  E.  M.  Patterson,  Co-operation  Among  Retail   Grocers   in   Philadelphia,  in   American 
Economic  Review,  Supplement,  Vol.  V,  No.  2,  pp.  280-281  (June,  1915). 


yS  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

figures  of  the  Harvard  Bureau,  quoted  above,  show  that  total 
salesforce  expense  is  the  largest  single  item  in  the  list,  amount- 
ing to  nearly  one-fourth  of  the  total  expenses.     For  some 
firms  it  runs  as  high  as  four  per  cent  of  net  saks.^    The  expe- 1 
rience  of  the  co-operative  associations  shows  that  for^^xtaip  \ 
lines  of  goods,  the  services  of  the  salesmen  are  not  necessary,  I 
from  the  standpoint  of  the  community  at  least.     Socially,  the  { 
most  important  function  of  the  salesman  is  an  educational  one. 
He  introduces  new  articles  to  the  retail  trade,  informs  them 
as  to  market  conditions,  advises  and  suggests  to  them  in  regard 
to  business  methods  and  opportunities,  and  promotes  the  sales 
of  various  goods  thru  convincing  the  retailers  of  their  merit. 
Theoretically,  the  retailer  is  then  supposed  to  convince  his 
customers  of  the  merits  of  the  articles,  old  or  new,  and  thus 
educate  them  to  economical  consumption. 

This  theory  seems  to  break  down  completely  with  regard 
to  at  least  two  general  lines  of  goods — staple  articles  and 
nationally  advertised  goods.  The  consumer  does  not  need 
the  educational  eflforts  of  the  retail  grocer  to  persuade  him 
to  use  sugar,  flour,  or  the  various  nationally  advertised  articles, 
such  as  the  products  of  the  National  Biscuit  Company.  These 
goods  can  be  marketed  in  large  quantities  without  the  assis- 
tance of  the  wholesale  grocer's  salesmen. 

From  the  standpoint  of  the  wholesaler,  the  services  of  his 
salesmen  are  important  for  three  reasons.  They  are  expected 
to  increase  the  sales  of  the  goods  like  these,  for  which  there  is 
a  considerable  demand  without  active  selling  efforts.  They 
are  necessary  for  the  introduction  of  new  articles.  Much  of 
their  usefulness  comes  from  the  fact  that  the  wholesale  grocery 
business  is  competitive,  and  the  salesmen  are  necessary  to  win 
and  hold  trade  from  competitors.  One  retailer  will  be  visited 
by  the  representatives  of  a  number  of  wholesalers,  each  trying 
to  persuade  him  to  take  the  same  or  similar  lines  of  goods.  Just 
as  the  duplication  of  effort  and  equipment  in  numerous  retail 
stores  means  reduced  efficiency  and  high  costs  of  distribution 
so  the  duplication  of  effort  of  competing  salesmen  of  the  whole 

*  Bureau  of  Business  Research,  Harvard  University,  Bulletin  No.  9,  p.  5. 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  79 

salers  leads  to  the  same  results.  The  resulting  high  cost  of 
distribution  will  tend  to  cause  a  higher  price  scale  to  the  con- 
sumer. According  to  accepted  economic  theory,  the  price  of 
a  supply  of  goods  is  fixed  at  the  point  where  the  marginal  or 
last  unit  will  be  sold.  As  supply  is  increased,  demand  remain- 
ing the  same,  the  price  at  which  the  marginal  unit  will  be 
disposed  of  will  be  lower.  Thus,  the  price  of  the  entire  supply 
will  be  lowered.  This  price  cannot  remain,  for  long  periods, 
below  the  cost  of  production,  including  the  marketing  process, 
of  those  marginal  units.  In  the  wholesale  grocery  business,  the 
marginal  units  would  be  those  contributed  by  the  least  efficient 
firms.  Products  will  not  be  marketed  for  long  at  prices  too  low 
to  cover  these  expenses.  If  such  marginal  firms  are  not  making 
expenses,  they  will  go  out  of  business.  The  supply  of  goods 
will  be  slightly  decreased,  with  a  corresponding  increase  in 
price,  or  else  the  goods  will  be  handled  thru  more  efficient 
firms  with  lower  costs.  In  the  latter  case,  an  increased 
supply  and  a  lower  price  is  made  possible. 

In  the  past,  many  goods  handled  by  the  wholesalers  have 
not  been  increased  in  price  by  a  margin  sufficient  to  cover  the 
cost  of  handling  them.  The  twelve  to  fourteen  per  cent 
increase  mentioned  at  the  beginning  of  the  paper  is  simply  an 
average.  Many  goods  are  handled  with  a  much  smaller 
increase.  Sugar  is  frequently  handled  by  wholesalers  with 
an  increase  of  but  four  per  cent.  Other  staple  lines  have 
similar  low  margins.  These  are  made  up  by  large  increases 
on  other  goods,  especially  special  lines  and  fancy  articles.  Some 
lines  of  certain  canned  goods  may  be  handled  by  wholesalers 
with  a  gross  profit  of  fifty  per  cent  of  sale  price — an  increase 
of  one  hundred  per  cent  of  purchase  price.  Under  the  regula- 
tion of  the  Food  Administration  during  the  war,  these  high 
margins  were,  in  the  cases  of  regulated  commodities,  cut  down, 
while  on  some  of  the  staple  lines,  such  as  sugar,  margins  of 
profit  larger  than  had  been  customarily  made  by  many  whole- 
salers were  allowed,  on  the  theory  that  these  should  bear  their 
cost  of  handling.  The  wholesalers  now  seem  to  be  trying 
to  maintain  these  larger  margins  on  staples.     In  the  trade 


8o  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

journals  and  at  various  conventions,  the  advisability  of  making 
sugar  continue  at  least  to  bear  its  share  of  the  expenses  has 
been  urged.  But  whether  every  article  handled  by  the  whole- 
saler is  increased  in  price  by  just  the  amount  which  it  costs  to 
handle  it  plus  profit,  or  not,  the  public  ultimately  pays  the 
costs,  either  in  increases  on  all  articles,  or  in  specially  large 
increases  in  certain  restricted  lines.  If  the  expenses  of  mar- 
ginal firms  are  high,  the  result  will  be  a  restriction  of  supply, 
and  a  consequent  price  level  higher  than  could  be  possible  if 
more  efficient  methods  of  marketing  brought  more  goods  to 
consumers  at  lower  costs.  The  cost  of  marketing  is  increased 
by  the  expensive  wholesale  salesmen,  competing  with  each 
other,  and  duplicating  each  other's  work. 

As  compared  to  the  regular  wholesalers,  the  co-operative 
associations  are  able  to  market  larger  quantities  of  staples, 
nationally  advertised  goods,  and  well  known  articles  without 
the  services  of  salesmen  than  the  individual  wholesalers  are 
able  to  sell  with  salesmen.  By  eliminating  the  expense  of 
salesmen,  they  do  this  marketing  in  a  more  efficient  and 
economical  manner.  This  enables  them  either  to  undersell 
the  regular  wholesalers,  or  to  make  larger  profits.  Theoreti- 
cally, it  should  result  in  a  larger  supply  of  goods,  thus  bringing 
a  lower  price. 

It  is  interesting  to  note  in  this  connection  that  some  of  the 
wholesalers  have  given  consideration  to  the  plan  of  changing 
their  methods  by  restricting  their  own  use  of  salesmen.  None 
has  actually  given  up  the  employment  of  salesmen,  but  the 
writer  was  informed  by  a  member  of  one  of  the  firms  asso- 
ciated with  the  Wholesale  Grocers'  Sales  Company  that  they 
had  sent  out  a  series  of  letters  to  a  number  of  manufacturers 
asking  them  if  they  would  regard  it  as  desirable  for  the  regular 
wholesalers  to  abolish  their  salesmen,  or  cut  down  their  ac- 
tivities very  considerably,  and  adopt  the  method  of  selling 
thru  circulars  giving  prices  and  goods  in  stock,  the  way  the 
co-operative  associations  do.  The  responses  were  very  gen- 
erally in  the  negative,  showing  that  the  manufacturers  felt 
that  the  services  of  the  salesmen  were  valuable  to  them.     At 


Competition  and  Combinafion  in  the  Wholesale  Grocery  Trade  8i 

the  same  time  this  fact  is  evidence  that  the  condition  is  what  the 
laws  of  economics  would  lead  us  to  expect.  The  reduced 
costs  of  the  co-operative  associations  enable  them  to  increase 
the  supply,  and  bear  the  resulting  lower  prices  better  than  the 
regular  firms  with  higher  costs.  These,  with  profits  eliminated, 
must  then  reduce  their  expenses,  or  disappear  from  the  market. 

Nor  do  the  replies  of  the  manufacturers  necessarily  negative 
the  conclusion  reached  above  that  for  well-known  or  nationally 
advertised  goods,  from  the  standpoint  of  the  consuming  public, 
the  associations  stand  for  more  economical  methods  of  distri- 
bution. The  method  which,  for  competing  manufacturers, 
is  profitable,  may  very  well  be  the  one  which  for  the  public 
ultimately  bearing  the  costs  of  that  competition  is  less  efficient. 
The  salesmen  of  the  wholesalers  do  represent  such  a  less 
efficient  method  because  they  are  rendered  unnecessary  as 
educational  factors  by  advertising,  because  they  largely  dupli- 
cate each  other's  efforts  and  work,  and  because  their  chief 
activity  is  not  educational  at  all,  but  simply  consists  in  en- 
deavoring to  win  business  for  their  particular  houses.  Here  I 
again,  then,  as  in  the  case  of  the  failure  of  the  associations  to/ 
give  extended  credits,  the  very  fact  that  they  do  not  fill  alli 
the  functions  performed  by  the  usual  wholesaler  means  thatl 
they  stand  for  more  efficient  business  methods.  / 

The  third  function  which  the  associations  do  not  perform 
so  completely  as  the  independent  wholesaler  is  that  of  furnish^ 
ing  goods  at  the  time  required.  They  will  make  only  one 
delivery  a  week,  and  will  accept  extra  orders  only  upon  making 
an  extra  charge,  whereas  the  wholesaler  will  usually  deliver  an 
unlimited  number  of  small  orders  to  the  same  retailer. 

There  does  not  appear  to  be  any  valid  reason  why  a  well- 
managed  retail  store  ought  not  to  be  able  to  get  along  on  one 
delivery  of  groceries  a  week,  except  in  very  unusual  circum- 
stances. The  articles  included  in  groceries  are  not  perishable 
goods.  The  experience  of  the  retailer  ought  to  enable  him  to  r 
forecast  with  a  fair  degree  of  accuracy  the  demand  for  at  least/ 
a  week  ahead.  If  he  has  any  famiharity  with  his  stock,  he 
should  be  able  to  tell  what  lines  are  running  low  and  should 


82  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

be  replenished.  Of  course,  many  retail  grocers  fail  to  do  these 
last  two  things.  They  make  little  attempt  to  forecast  demand, 
and  do  not  realize  that  their  stock  of  certain  articles  is  low 
until  they  suddenly  discover  that  their  shelves  are  nearly 
empty  of  them.  To  such,  the  method  of  the  associations  is  a 
stimulus  to  more  efficient  merchandising  systems.  Here  again, 
in  discouraging  extra  deliveries,  the  co-operative  associations 
stand  for  more  efficient  business  methods. 

It  seems  then  that  the  answer  to  the  first  of  our  questions, 
What  is  the  effect  of  the  development  of  the  co-operative 
associations  upon  the  efficiency  of  the  system  of  distributing 
groceries,  must  be  that  they  have  tended  to  make  that  system 
more  efficient.  Simply  because  of  their  large  size,  they  can| 
receive  quantity  shipments  from  the  manufacturers,  store  the^ 
goods  and  regulate  the  flow  of  goods,  if  efficiently  managed, 
more  economically  than  can  the  independent  wholesalers. 
Thru  their  credit  restrictions,  they  tend  to  limit  the  business  to  \ 
responsible  persons,  using  their  own  capital  and  capable  of 
operating  a  store  with  a  certain  degree  of  business  efficiency. 
Indirectly,  they  have  led  to  a  general  tightening  of  credits  by 
the  wholesalers  of  the  city.  They  represent  a  tendency,  which 
if  continued,  would  result  in  a  desirable  reduction  in  the 
number  of  retail  grocery  stores.  They  eliminate  the  activities 
of  the  salesmen  in  connection  with  a  large  number  of  commod- 
ities for  which  they  are  not  necessary.  In  the  matter  of  deliver- 
ies, they  require  the  retailer  to  keep  a  closer  watch  on  his  stock 
and  get  along  with  fewer  deliveries. 

The  second  question  raised  in  connection  with  the  develop- 
ment of  the  associations  was.  Do  they  represent  a  tendency 

/toward   the  elimination   of  the  wholesaler?     While   the   co- 
operative associations  represent  more  efficient  methods,  for 

\   many  reasons  it  seems  unlikely  that  they  will  ever  completely 
supplant  the  older  type  of  wholesaler.     From  the  standpoint  • 
of  the  retailer  they  have  certain  limitations.     In  the  first  place,  ^ 
many  require  credit,  those  who  give  credit  to  their  customers 
"in  particular.     As  long  as  the  pubHc  demands  credit  the  busi- 
ness cannot  be  carried  on  on  a  strictly  cash  basis,  without  an 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  83 

unwarrantedly  large  investment  of  capital  by  the  retailers. 
Even  the  members  of  the  Girard  and  Frankford  must  have 
credit  to  some  extent,  and  depend  upon  the  wholesalers  for  it. 

Again,  many  retailers  are  unable  to  meet  the  entrance  require- 
ments of  the  two  associations.  While  this  does  not  prohibit 
them  from  purchasing  from  the  Girard  or  Frankford,  they 
can  do  so  only  upon  the  payment  of  cash.  They  are  able  to  do 
this  only  to  the  extent  of  a  very  small  percentage  of  their  total 
purchases,  so  that  the  vast  majority  of  them  depend  entirely 
upon  the  wholesalers. 

Another  disadvantage  from  the  standpoint  of  a  certain  type 
of  retailer  is  the  lack  of  salesmen.  The  wholesale  salesmen 
supply  to  the  wholesale  trade  a  personal  touch  somewhat 
analogous  to  that  which  the  independent  store  supplies  in  the 
retail  trade,  in  contrast  with  the  chain  stores.  He  brings  the 
wholesaler  into  direct  personal  contact  with  the  retailer.  He 
aims  to  make  the  retailer  feel  that  the  wholesaler  is  interested 
in  him  and  willing  to  assist  him.  Many  retailers  depend  to  a 
large  degree  upon  the  wholesaler's  salesmen  for  information 
and  advice.  As  an  offset  to  this  lack  of  personal  touch  thru 
salesmen,  the  associations  have  the  fact  that  they  are  organized, 
financed,  and  controlled  by  the  retailers  themselves.  Because] 
of  this  they  can  command  the  loyalty  of  their  members.  But 
with  many  grocers,  interest  and  influence  in  an  association 
shared  with  seven  hundred  or  sixteen  hundred  competitors 
makes  less  of  an  appeal  than  the  direct  personal  contact  with 
the  salesman. 

The  lack  of  salesmen  is  likewise  a  disadvantage  from  the 
standpoint  of  certain  manufacturers.  Those  who  are  intro- 
ducing new  articles  will  probably  still  find  it  to  their  advantage 
to  avail  themselves  of  a  wholesaler's  salesmen.  Those  who 
have  well  estabhshed  brands  may  find  it  profitable  to  use  the 
same  agency,  under  certain  conditions.  As  we  have  seen, 
none  of  the  other  agencies  attempting  these  things  seem  to 
give  complete  satisfaction  in  all  cases. 

It  is  interesting  to  note  that  a  somewhat  similar  develop- 
ment in  the  drug  trade  has  not  resulted  in  the  elimination 


84  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

of  the  wholesaler.  The  article  by  L.  D.  H.  Weld^  referred  to 
earlier  describes  thirteen  co-operative  associations  of  retail 
druggists  carrying  on  wholesale  businesses.  The  business 
methods  of  these  associations  are  quite  similar  to  those  of  the 
Girard  and  Frankford.  They  limit  credit,  allow  it  only  to 
members  who  have  stock  or  cash  on  deposit,  and  employ  no 
salesmen. 

The  oldest  of  these  is  located  in  Philadelphia.  It  was 
organized  in  1888  and  has  had  a  continuous  and  successful 
existence.  It  includes  about  half  of  the  retail  druggists  in  the 
city  as  its  customers.  Yet  the  regular  wholesalers  are  still 
dominant  in  the  Philadelphia  drug  trade.  The  retail  druggist 
is  in  much  the  same  situation  as  the  retail  grocer.  He  needs 
a  certain  amount  of  credit  and  must  get  it  from  the  wholesaler. 
He  needs  certain  lines  of  goods  which  the  co-operative  associa- 
tion does  not  handle.  Thus  while  the  co-operative  association 
of  druggists  handles  goods  more  cheaply  than  the  regular 
wholesaler,  and  pays  good  dividends  to  its  stockholding  mem- 
bers, the  retailers  must  still  depend  to  a  large  extent  upon  the 
regular  wholesalers. 

From  these  facts  it  seems  safe  to  assume  that  while  the  co- 
operative associations  represent  a  curtailment  of  the  function 
of  the  wholesaler  with  a  tendency  toward  more  efficient  and 
more  economical  distribution  in  certain  lines,  the  regular 
wholesaler  will  still  be  a  necessary  factor  in  our  distributing 
system. 

*L.  D.  H.  Weld,  Co-operative  Buying  by  Retail  Druggists  in  the  Druggist  Circular,  Vol. 
Ixi,  pp.  1 19-123  (March  191 7). 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  85 


BIBLIOGRAPHY 

GENERAL  WORKS  ON  MARKETING 

Butler,  Ralph  Starr.  Marketing  Methods.  Alexander  Hamilton  Insti- 
tute, New  York. 

Gives  a  general  survey  of  the  different  steps  in  the  marketing  process,  and  the  functions 
of  wholesaler  and  retailer. 

Erstenberg,  Charles  W.  Principles  of  Business.  Prentice-Hall,  Inc., 
New  York.     191 9. 

Chapter  XXI,  pp.  460-482,  gives  a  brief  discussion  of  the  middlemen  in  the  marketing 
system,  and  the  substitutes  for  them. 

Nystrom,  Paul  H.  Economics  of  Retailing.  The  Ronald  Press  Company, 
New  York.     1917. 

Describes  the  systems  of  marketing  various  commodities,  and  the  middlemen  thru  whom 
they  pass  in  the  regular  course  of  marketing. 

Shaw,  A.  W.     Some  Problems  in  Market  Distribution.     Harvard  University 

Press,  Cambridge.     191 5. 

Chapter  III,  pp.  64-99,  g'ves  a  good  description  of  the  various  methods  of  distributing 
products  from  manufacturer  to  consumer,  comparing  the  advantages  of  different  policies. 

Swinney,  John  B.     Merchandising.     Alexander  Hamilton  Institute,  New 

York.     1 91 7. 

Part  I  deals  with  wholesale  merchandising,  and  discusses  the  functions  of  jobber,  selling 
agent,  factor,  commission  merchant  and  broker.  Chapter  X,  pp.  134-145,  describes  co-operative 
jobbing. 

Sparling,  Samuel  E.  Business  Organization.  The  Macmillan  Company, 
New  York.     1906. 

Chapter  XI,  pp.  253-269,  Wholesaling  and  Retailing,  describes  the  stages  thru  which 
articles  pass  on  their  way  from  manufacturer  to  consumer,  with  definite  discussion  of  the 
wholesale  grocery  business. 

Weld,  L.  D.  H.  The  Marketing  of  Farm  Products.  The  Macmillan  Company, 
New  York.     1916. 

Discusses  at  considerable  length  the  middlemen  of  the  wholesale  produce  trade  and  inci- 
dentally of  the  grocery  trade,  and  the  problems  of  the  retail  grocer. 

GOVERNMENT  REPORTS  ON  SPECIAL  PHASES 

The  Federal  Trade  Commission.     Report  on  the  Meat-Packing  Industry. 

The  Federal  Trade  Commission.     Report  on  the  Canning  Industry. 

Detailed  investigations  of  the  two  industries,  bearing  in  some  aspects  upon  the  questions 
with  which  the  article  is  concerned. 

INVESTIGATIONS  OF  THE  GROCERY  BUSINESS 

Bureau  of  Business  Research,  Harvard  University.  Bulletin  No.  5.  Expenses 
in  Operating  Retail  Grocery  Stores.  Harvard  University  Press,  Cam- 
bridge.    1915. 


86  Competition  and  Combination  in  the  Wholesale  Grocery  Trade 

Bureau  of  Business  Research,  Harvard  University.  Bulletin  No.  9.  Operat- 
ing Expenses  in  the  Wholesale  Grocery  Business. 

MAGAZINE  ARTICLES 

Patterson,  E.  M.  Co-operation  among  Grocers  in  Philadelphia,  in  the  Ameri- 
can Economic  Review,  Supplement,  Vol.  V.  No.  2  (June,  191 5),  pp.  279- 
291. 

An  account  of  developments  in  the  Philadelphia  market  preceding  the  events  with  which 
this  paper  is  concerned. 

Patterson,  E.  M.  The  Cost  of  Distributing  Groceries,  in  the  Annals  of  the 
American  Academy  of  Political  and  Social  Science,  November,  1913, 
pp.  74-82. 

Involves  a  discussion  of  certain  features  of  the  method  of  distribution  thru  wholesalers. 
This  entire  issue  of  the  "Annals"  deals  with  the  system  of  Food  Distribution,  but  this 
article  alone  bears  directly  on  the  subject. 

Weld,  L.  D.  H.     Co-operative  Buying  by  Retail  Druggists,  in  the  Druggists 
Circular,  Vol.  Ixi,  No.  3  (March,  1917),  pp.  1 19-123. 
Describes  a  similar  movement  among  retail  druggists. 

Weld,  L.  D.  H.    High  Food  Prices,  Middleman  and  Speculator,  in  the  North 
American  Review,  Vol.  206  (Oct.  1917),  pp.  586-594. 
Defends  the  present  system  of  distribution  thru  a  series  of  middlemen  against  current 

criticisms. 

TRADE  PUBLICATIONS 

American  Grocer 

Source  for  general  trade  news,  with  little  bearing  directly  on  the  situation  studied.  The 
following  articles  touch  upon  it: 

Girard  Grocery  Company,  Aug.  15,  191 7,  p.  6. 
Retailers  Co-operate,  Sept.  5,  191 7,  p.  4. 
Sweep  Away  Middlemen,  Aug.  15,  191 7,  p.  9. 
Japanese  Grocers'  Buying  Exchange,  Aug.  28,  191 8,  p.  15. 

Modern  Merchant  and  Grocer  World 
Of  little  value. 

The  Grocers*  Review 

The  official  publication  of  the  Retail  Grocers'  Association  of  Philadelphia,  and  the  chief 
source  for  information  in  regard  to  the  local  situation,  outside  of  personal  interviews.  Material 
is  drawn  from  a  large  number  of  items  and  articles,  given  in  the  footnotes.  Among  the  more 
important  long  editorials  and  articles  are  the  following: 

Proceedings  of  the  Annual  Convention  of  the  Retail  Merchants' Association  of  Pennsyl- 
vania given  in  one  number  each  year,  usually  September. 

Annual  Reports  and  Balance  Sheets  of  the  Girard  Grocery  Company,  usually  published 
in  the  August  number  of  each  year. 

What  is  an  Association,  March,  191 8,  p.  46. 

What  is  the  Answer,  April,  191 8,  p.  114. 

Is  100%  Co-operation  Worth  While,  April,  191 8,  p.  115. 

The  Pennsylvania  Merchant 
Of  little  value. 

The  Unity  Bulletin 

The  official  and  confidential  organ  of  the  Frankford  Grocers'  Association.  Published  for 
distribution  only  among  members.  Considerable  information  is  drawn  from  paragraphs  and 
items  in  this  publication.  Its  price  lists  furnish  a  basis  for  comparing  the  prices  of  the  Frank- 
ford  with  those  of  regular  wholesalers. 


Competition  and  Combination  in  the  Wholesale  Grocery  Trade  87 

PAMPHLETS  AND  PRIVATE  PAPERS 

Fernley,  Thomas  A.     The  Middle  Man  as  an  Economic  Medium  of  Distri- 
bution. 
A  popular  exposition  of  the  part  played  by  middlemen,  of  little  scientific  value. 

National  Hardware  Association  of  the  United  States.     The  Economic 
Value  of  the  Wholesaler  of  Hardware  and  Reasons  Why  He  is  Essential. 

National  Wholesale  Dry  Goods  Association.     The  Value  of  the  Whole- 
saler of  Dry  Goods  as  a  Distributor  and  Reasons  Why  He  is  Essential. 

Pamphlets  similar  to  the  first.     Collections  of  essays  written  by  interested  parties  for  their 
own  justification. 

Wessels,  C.  M.     The  Greatest  Merchandising  Story  Ever  Told. 
Describes  the  plan  of  "Co-operators,"  described  in  the  paper. 

NEWSPAPER  ARTICLES 

Philadelphia  Public  Ledger: 

Oct  II,  1917,  p.  15.     Grocers  Unite  to  Beat  Chain  Store  Methods. 

May  II,  1 91 8,  p.  11.    Independent  Grocers  Boost  Their  Business. 

Dec.  29,  1 91 8.     Community  Stores  Vote  to  Disband. 
Philadelphia  Inquirer: 

Aug.  I,  1 91 7,  p.  4.    $iyOOOyOOO  Merger  is  Grocers'  Plan. 

on  the  chain  store  merger 
Philadelphia  Public  Ledger,  Jan.  30,  191 7.     Merger  Planned  by  Chain  Stores. 
Philadelphia  Public  Ledger,  Apr.  3,  1917.      Chain  Stores  to  Cut  Living  Cost  for 

Consumer. 
Philadelphia  North  American,  Jan.  30,  191 7.      Five  Big  Chain  Store  Systems 

Merge  into  SS^jOOOfioo  Concern. 
The  Evening  Bulletin,  Philadelphia,  Apr.   17,   1917.      Chain  Store  Merger 

Details  Announced. 


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